Journal of Energy Markets

Derek W. Bunn

London Business School

The second volume of The Journal of Energy Markets continues the success of the first year in attracting high-quality papers on methodological, empirical and policy themes of timely importance to understanding the evolution of energy markets in these challenging times. In this issue, we have papers addressing the details of power price formation, power investment and oil shocks in the global economy.

In the opening paper, "Derivation of locational marginal prices for restructured wholesale power markets", Liu et al provide a detailed analysis of the effect of different load flowassumptions in the calculation of locational marginal prices. This is a valuable paper in that it provides insights into the often-obscure process of price formation in a market mechanism that is becoming widely applied.

Coulon and Howison, in the following paper "Stochastic behavior of the electricity bid stack: from fundamental drivers to power prices", develop a high-frequency power pricing model based upon fuel prices, demand and available capacity. This is calibrated successfully to data from the PJM and New England markets and is innovative in developing an econometric supply function representation to link the power to fuel prices.

The next paper "New renewable electricity capacity under uncertainty: the potential in Norway", by Fleten and Ringen, uses a real options analysis of the investment triggers for new renewable facilities in Norway. Apart from electricity price risk, the uncertainty in green certificate values is crucial in the analysis. Forecasts for new investment show that the option value of waiting is significant and may slow the achievement of policy targets.

Finally, Refalo, in "China's impact on price shocks in the world oil markets", presents a topical paper with a timely commentary on the increasing volatility of oil prices and the importance of the economic impact of China as one of the drivers.

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