Forward premium and its application in power plants risk management in Iran electricity market and energy exchange

This paper peruses forward premium and influential factors affecting it in Iran electricity market and energy exchange transactions. In this study, Bessembinder and Lemmon (B - L) equilibrium theory as an electricity futures pricing model investigates. First, using Merton's jump diffusion model, electricity prices forecasted, then ex-ante forward premium calculated and the last B - L theoretical basis examines using markov regime switching model. The results confirm Bessembinder and Lemmon model partially. Defects observed in the market originates from illiquidity, fixed tariffs in different sectors , inactive position of consumers and imperfect restructuring in power sector. So, changes in the regulation by creating entrance opportunity for new participants such as speculators and also the electricity retail allowance issuance are recommended. Second subject is offering some guidance for the power plants about suitable time for futures transactions that carrying out in usual demand seasons such as fall and spring is advised.