Long term electricity markets efficiency and values

The increasing penetration of Variable Renewable Energy sources has several consequences for both electricity system and electricity markets. With respect to electricity markets, there is a rise in the volatility of power prices, whereas for electricity system some problems concerning the security of supply are emerging. For these reasons, market operators need to hedge against an increasing risk. This could be done by participating to long-term electricity markets. This thesis work focuses on the efficiency and value of electricity forward and capacity markets in an energy transition perspective. In forward markets, energy in MWh is exchanged for a future delivery. Instead, in capacity markets the power plant is remunerated for its availability to produce electricity when needed. Both are long-term markets, as they take place from some months up to several years before delivery. The first part of ths work deals with the efficiency of forward markets. In particular, the relationship between electricity spot and futures prices in France, Germany, Italy and Switzerland is studied following the risk premium theory. The results confirm that electricity futures markets are not efficient, as both positive and negative risk premia are recorded in four main European countries. In addition, the results prove that this risk premium have a time dependence and it is country specific. The second part deals with capacity markets. In particular, the value of investments in capacity financed by a capacity remuneration mechanism (CRM) is investigated by adopting a stochastic approach. Distinct models are developed for three different technologies, namely a capacity provided by Variable Renewable Energy source coupled with an efficient Energy Storage System, a thermal efficient capacity, and a brown capacity. The results show that the presence of CRM shrinks power plants revenues and as consequence decreases the final Present Value in the three models. Calibrations and sensitivity analysis are performed in order to study the models by adopting real market data. Finally, the value of the investment from the point of view of the whole society is studied. The results show that the ranking of three technologies considered within this study is the opposite of the one that the energy transition would require. Altogether, the results obtained with this thesis work provide a valuable contribution for a better understanding of the complex mechanisms underlying long-term electricity markets, in the perspective of achieving energy transitions goals.