This paper demonstrates the relevance of incorporating renewable production and skewness preference in electricity forward pricing models. Starting from a meanvariance-skewness utility function, we prove that equilibrium forward premia are determined by idiosyncratic moments: variance and skewness of wholesale spot prices, as well as systematic mixed moments: covariance and coskewness between renewable output and spot prices. We find empirical evidence that coskewness and covariance are statistically significant and improve the explanatory power of regression by more than 30 percents. Spot price skewness is less important and negatively relates to forward premia due to a flatter supply curve of thermal plants. Further decomposing the risk factors into supply and demand shocks, we show that renewable supply volatility increases while skewness reduces forward premia. The results suggest the importance of considering the asymmetry of renewable supply shocks in explaining electricity forward premia.
He et al. (Sun,) studied this question.