A Comment on: Storage and the Electricity Forward Premium

Abstract

This paper examines the robustness of the results found by Douglas and Popova (2008). They examine the electricity forward premium in relation to gas storage inventories and find that, although electricity is not directly storable, electricity forward premiums are lower when gas storage inventories are higher, especially on days with high temperatures. Douglas and Popova (2008) derive their results from a forward premium model that is an extension of the Bessembinder and Lemmon (2002) model. We examine the robustness of their results, by examining whether the gas storage inventory results hold under a different specification of the forward risk premium. Our result support the results found by Douglas and Popova (2008) and show that their results are not influenced by the specification of the forward premium model.

Keywords: forward premium, electricity

JEL Classification: G3, M