  We study time-zero efficiency of electricity derivatives markets. By
time-zero efficiency is meant a sequence of prices of derivatives contracts
having the same underlying asset but different times to maturity which implies
that prices comply with a set of efficiency conditions that prevent profitable
time-zero arbitrage opportunities. We investigate whether statistical tests,
based on the law of one price, and trading rules, based on price differentials
and no-arbitrage violations, are useful for assessing time-zero efficiency. We
apply tests and trading rules to daily data of three European power markets:
Germany, France and Spain. In the case of the German market, after considering
liquidity availability and transaction costs, results are not inconsistent with
time-zero efficiency. However, in the case of the French and Spanish markets,
limitations in liquidity and representativeness are challenges that prevent
definite conclusions. Liquidity in French and Spanish markets should improve by
using pricing and marketing incentives. These incentives should attract more
participants into the electricity derivatives exchanges and should encourage
them to settle OTC trades in clearinghouses. Publication of statistics on
prices, volumes and open interest per type of participant should be promoted.
