A futures contract whereby one counterparty is under obligation to buy from, or sell to, another counterparty a standardized amount of electricity at a pre-specified contract price (the forward price) at a certain time in the future. Electricity futures have the same payoff structure as electricity forwards. Nonetheless, electricity futures, like other financial futures contracts, are highly standardized in terms of contract specifications, delivery conditions, trading locations, and settlement procedures. The major difference between the contract specifications of electricity futures and those of electricity forwards is the quantity of power to be supplied. In general, the delivery amount specified in electricity futures is considerably smaller than that in forward contracts.
November 19, 2023
