Search results

This chapter examines the efficiency of the Midcontinent Independent System Operator (MISO), Inc., electricity exchange following its major expansion in terms of market participants and geographic scope in 2014. Specifically, hourly day-ahead (forward) and real-time (spot) prices from 2014 to 2016 reveal that forward premiums are prevalent despite the increase in market size. Furthermore, these forward premiums do not adhere to Bessembinder and Lemmon’s (2002) commonly used general equilibrium model for electricity forward premia. A technical trading rule based on the relationship between day-ahead prices across hubs that was found to be profitable prior to MISO’s expansion still produces economically and statistically significant returns after the exchange’s growth.

This chapter focuses on the common occurrence of wholesale electricity prices that fall below the cost of production. This “negative pricing” in effect represents payment to high-volume consumers for taking excess power off the grid, thus relieving overload. Occurrences of negative pricing have been observed since the wholesale electricity markets have been operating, and occur during periods of low demand, while generators are being kept in reserve for rapid engagement when demand increases (it is expensive and time-consuming to shut down generators and then restart them, so they are often kept in “spooling mode”). In such situations power production may temporarily exceed demand, potentially overloading the system. When the federal government began subsidizing the construction of wind generation projects, with regulations in place requiring transmission grids to accept all of the electricity produced by the wind generators, negative pricing became more frequent.

Midwest Independent Transmission System Operator, Inc. (MISO) is a nonprofit regional transmission organization (RTO) that oversees electricity production and transmission across 13 states and 1 Canadian province. MISO also operates an electronic exchange for buying and selling electricity for each of its five regional hubs.

MISO oversees two types of markets. The forward market, which is referred to as the day-ahead (DA) market, allows market participants to place demand bids and supply offers on electricity to be delivered at a specified hour the following day. The equilibrium price, known as the locational marginal price (LMP), is determined by MISO after receiving sale offers and purchase bids from market participants. MISO also coordinates a spot market, which is known as the real-time (RT) market. Traders in the RT market must submit bids and offers by 30minutes prior to the hour for which the trade will be executed. After receiving purchase and sale offers for a given hour in the RT market, MISO then determines the LMP for that particular hour.

The existence of the DA and RT markets allows producers and retailers to hedge against the large fluctuations that are common in electricity prices. Hedge ratios on the MISO exchange are estimated using various techniques. No hedge ratio technique examined consistently outperforms the unhedged portfolio in terms of variance reduction. Consequently, none of the hedge ratio methods in this study meet the general interpretation of FASB guidelines for a highly effective hedge.

This study aims to formulate a mechanism design in the derivatives market, summarizing a framework to set up the Brazilian electricity futures market.

This exploratory study formulates a mechanism design in the derivatives market, summarizing a framework to set up the Brazilian electricity futures market.

The results show a positive economic outcome for the creation of the Brazilian futures electricity market.

The main feature in this work is to summarize a framework to set up the Brazilian electricity futures market applying mechanism design, applicable in other countries. The features of the mechanism are the space of expected results (Z), the strategies to survey the environmental space (θ) and the mechanism design – messages space (M).

This paper seeks to analyze stylized statistical properties of the recent traded asset CO₂ emission allowances, for spot and futures returns, examining also the relation linking convenience yield and risk premium, for the German European Energy Exchange (EEX) between October 2005 and October 2009.

The study was conducted through empirical estimations of CO₂ allowances risk premium, convenience yield, and their relationships.

Future prices from an ex-post perspective are examined to show evidence for significant negative risk premium, or a positive forward premium. A positive relationship between risk premium and time-to-maturity is found. Both financial concepts are found to be negatively affected by spot price volatility. Convenience yield is positively influenced by CO₂ price, while influencing the risk premium positively.

From a financial perspective, allowances seem to be producing the desired effects in terms of environmental policies, although a lot more remains to be done. The presence of risk premium and convenience yield makes it clear that agents act in this commodity market according to risk consideration. Results change depending on phase and futures contracts used for the determination of both financial terms, indicating that uncertainties over the future of EU-ETS seem to be decreasing.

Previous research has mainly focused on the first phase of the EU-ETS (2005-2007), whereas this paper extends the analysis period here. The paper finds some opposite results compared with previous commodities theories and designs some policy implications, given the results attained.

The paper investigates whether stock liquidity of firms is valued by lending banks revealing that firms with higher liquidity in the capital market pay lower spreads for the loans they obtain. This relationship is causal as evidenced by using the decimalization of tick size as an exogenous shock-to-stock liquidity in a difference-in-differences setting. Reduction in financial constraint and improvement in corporate governance induced by higher stock liquidity are potential mechanisms through which liquidity impacts loan spreads. These higher liquidity firms also receive less stringent nonprice loan terms, for example, longer loan maturity and less required collateral.

Pre-letting and pre-sale financing arrangements have been widely adopted to increase housing delivery in the developed economy. Despite the increasing level of adoption in some developed countries, some are reverting to spot property buying because of factors militating the adoption of pre-letting and pre-sale financing. However, little has been done on the factors influencing the adoption of these trust-based financing arrangements in the developing economy where there are challenges of trust and market transparency.

Using a closed-ended questionnaire, 87 property development companies (PDCs), which constituted 63.5% of the 137 PDCs in Lagos metropolis, were sampled. Variables that influence adoption of pre-letting and pre-sale financing arrangements were presented to respondents for rating on a five-point Likert scale, ranging from 1 (not influential) to 5 (very highly influential). With the aid of SPSS software, acquired data were analysed using principal component analysis (PCA), mean rating and standard deviation.

The PCA finding revealed that factors influencing the adoption of pre-letting and pre-sale financing had 69.641% total variance. Top-rated components were fear of financial risk and firm’s reputation and poor government involvement and contractors' credibility, with 15.114% and 11.895% variances, respectively. The study findings suggested that the buyers' apprehension regarding the transfer of financial risk and the reputation of the firms significantly influence their decision to embrace both arrangements. As a result, the buyers' willingness to engage the financing arrangements is reduced, which consequently imparts adoption negatively. Furthermore, there is worrisome lack of government involvement, a crucial aspect for the success of such arrangements.

Pre-letting and pre-sale financing arrangements are found to be highly suitable for environments where there is trust. The findings enlighten the development firms on the need to uphold their reputation, as buyers attach great significance to the credibility and integrity of the companies they engage in business.

This paper is one of the few attempts that have sought to explore the factors influencing pre-letting and pre-sale financing arrangements in an emerging market like Nigeria.

This paper offers an alternative approach to assessing contagions in price and load in the Australian interconnected power markets. This approach enabled us to identify a high-risk region and assess the direction of contagions from both buyers' and sellers' perspectives.

The author used a multinomial logit method to measure contagions. Having identified the exceedance and coexceedances, the author estimated the multinomial logit coefficients of the covariates explaining the probability of a certain number of coexceedances.

Market participants should recognize the presence of contagion risk and scrutinize price and load dynamics in the NSW and VIC regions to anticipate any simultaneous extreme changes. Regulators need to stabilize the demand and supply sides in those regions to minimize any possible contagions.

This paper presents a pioneering study investigating contagion in the Australian interconnected power markets.