Besides fundamental drivers, behavioural drivers such as hedging behaviour influence power prices and particularly the price shape of the forward curve. While it is relatively well known that power producers, and particularly the operators of lignite-fired power stations, have been forced to hedge their production later, this whitepaper analyses the hedging behaviour on the buy side.
In Germany, the buy side is dominated by smaller utilities, with two thirds of end-user demand supplied by local “Stadtwerke”. A persistent downwards trend of power prices over the past years has created the impression that power prices inherently fall towards delivery, encouraging many Stadtwerke and industrial consumers to hedge their demand later. This removes demand from longer-dated contracts and shifts it into shorter-dated products, and is therefore bearish for longer-dated contracts and bullish for shorter-dated ones.
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