*6.1. Policy Implications*

By utilizing the three lemmas discussed in Sections 5.2 and 5.3, we can propose two policy implications. First, through speculative trading, electricity price spikes can be reduced. Pricing is one of the signals for market conditions. Therefore, in terms of efficiency, price jumping is not desirable. Price spikes are considered in several research papers (Huisman et al. (2003) [9], Weron et al. (2004) [26] and others as noted in Section 2). Price spikes occur because the electricity market is characterized by inelastic demand and a stair-like supply curve. However, speculative trading allows suppliers to be electricity buyers on date 1. This increases the elasticity of the total demand, and the price change becomes relaxed.

Abrupt price fluctuations are undesirable because they increase the market risk. The presence of forward markets is motivated by speculation, so they become more sensitive to price differences. As a result, forward market will be effective for reducing price fluctuations.

Second, the forward market is also an important factor for making policy decisions that may cause prices to move in the opposite direction. If the price on date 1 is large, the price on date 2 tends to be lower. As the government's main policy target includes consumers who lack market power, it is important to keep the price of the second quarter (that is, the real-time price) low.

The main risk posed by forward markets may be the speculative price hikes. In the case of other asset bubbles, high prices are factors that can hurt efficiency. However, the situation is different in the case of the electricity market. The power market cannot save power because of the characteristics of power; therefore, the power capacity within a certain time zone loses the opportunity cost if it is not sold. Therefore, prices do not remain high, as is the case for ordinary assets. As a result, it is unlikely that the consumer's utility will be impaired by the high electricity prices. Conversely, as Lemma 2 shows, price increases in the forward market are likely to increase consumer utility. From this viewpoint as well, the effectiveness of the forward market for electricity can be demonstrated.
