The Nordic power exchange : analysis of the market efficiency

Abstract

The aim of this thesis is to examine the market efficiency of the Nordic power exchange by analysing the electricity market, its structure and the pricing mechanisms. An empirical analysis of Nord Pool is carried during the recent period to investigate the predictability of electricity prices using the futures market. We have based our analysis on a traditional theory of futures pricing i.e. the storage theory. The limits of applying the cost of carry hypothesis on electricity markets are presented. In addition, the market efficiency is tested using modern econometrical tools such the cointegration technique and the Error Correction Model (ECM).