Journal of Energy Markets

Kostas Andriosopoulos
Alba Graduate Business School

The expansion and increasing integration of renewable energy sources is transforming wholesale market dynamics – with the merit-order effect affecting price levels, risk management and investment decisions – while also increasing dependency on weather conditions. Surges in wind and solar output are driving down wholesale electricity prices in individual electricity markets and across interconnected neighboring bidding zones, eroding capture prices and value factors through the so-called cannibalization effect. The resulting negative price–volume covariance introduces additional profile, volume and basis risk to generators and offtakers alike, which cannot be addressed through conventional baseload futures. Beyond market efficiency and structure, energy price volatility has distributional, socioeconomic implications for household welfare and energy affordability. This issue of The Journal of Energy Markets explores the health consequences of energy poverty, the pricing and hedging of renewable energy risk, and the design of efficient electricity pricing mechanisms.

The first paper in the issue, “Health composite indexes and the indoor energy poverty nexus: evidence from France” by Waed Safar, studies the dynamics between energy poverty and individuals’ physical and mental health using household survey data from France. Using propensity score matching and composite indicators, Safar examines how energy vulnerability (manifested through thermal discomfort, financial strain and housing deficiencies) affects mental and respiratory health outcomes. The main findings of the study suggest that mental and respiratory health is mainly affected by thermal discomfort, whereas financial constraints and inadequate housing conditions are linked with a broader spectrum of adverse health outcomes. This paper analyzes the findings of a 2019 survey specifically designed to analyze the relationship between energy, housing and health and makes an important contribution to understanding the wider socioeconomic implications of energy poverty and the potential benefits of targeted public interventions in housing improvements and energy efficiency measures.

In the issue’s second paper, “Structured renewable energy derivatives”, Giovanni Masala and Amelie Schischke address the financial challenges for renewable energy producers in managing the joint exposure to electricity price and generation volume risks. By using machine learning techniques, Monte Carlo simulation and riskneutral valuation of structured derivatives, the authors develop an integrated framework that combines climatic and electricity price forecasting. Their empirical analysis demonstrates the potential of advanced forecasting models and appropriately designed minimum-variance hedging strategies to mitigate revenue uncertainty for hybrid wind–solar installations, reducing profit-and-loss variance by approximately 70%. By bridging physical energy production with financial valuation and risk management, the study contributes to the development of effective instruments for the valuation and hedging of energy risks when it comes to wind and solar investment.

Finally, our third paper, “Profit-guaranteed locational marginal price computation in non-convex electricity markets using sequential linear programming” by Ashwini Bidwai, Suraj Kumar Gadari and Deep Kiran, delves into the complexities of electricity market clearing and price formation in the presence of non-convex generation costs and operational constraints. The authors develop a pricing framework based on a primal–dual formulation and sequential linear programming that aims to guarantee adequate compensation for the generator while incorporating lost opportunity costs. They present three case studies that analyze the performance of their proposed framework and show that the generated locational marginal pricing supports competitive equilibrium without requiring any side payments. Their study contributes to the broader literature and to ongoing discussion on electricity market efficiency, transparency in generator remuneration and compliance of market incentives with system operational requirements.

Taken together, these three studies underscore the importance of developing energy systems that are not only economically viable or efficient but also financially resilient and socially inclusive. Indeed, we are witnessing a period when prolonged geopolitical turbulence is reshaping the global energy map and stalling the linear energy transition, making it imperative to mobilize all available energy resources and to diversify sources and routes. The energy sector has become increasingly critical in countries’ autonomy, socioeconomic prosperity, geostrategic power and national security. Rising energy prices, supply chain disruptions and financial system risks are impacting the resilience of the global economy. Security and economic resilience must therefore be closely aligned with energy democratization in order to ensure access to sustainable and affordable energy, greater multi-stakeholder participation in energy markets and a more equitable distribution of the benefits and opportunities of the energy transition. Addressing these interrelated challenges requires a comprehensive approach by both academic researchers and policy and decision makers, in which quantitative modeling, financial innovation, market regulation and social welfare should play a central role.

The Journal of Energy Markets remains committed to publishing research that advances our understanding of these evolving challenges and supports the development of sustainable, inclusive and human-centric energy markets.