Using Forward Markets to Improve Electricity Market Design
          
                   Lawrence M. Ausubel and Peter Cramton
      
  
, 
            4
      (    
                  18
      
  
)
            Utilities Policy
      
            195-200
      
            December
      
            2010
      
            
          
                          
      
  
  Abstract
              Forward markets, both medium term and long term, complement the spot market for wholesale electricity. The forward markets reduce risk, mitigate market power, and coordinate new investment. In the medium term, a forward energy market lets suppliers and demanders lock in energy prices and quantities for one to three years. In the long term, a forward reliability market assures adequate resources are available when they are needed most. The forward markets reduce risk for both sides of the market, since they reduce the quantity of energy that trades at the more volatile spot price.