Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Integration and Efficiency of European Electricity Markets: Evidence from Spot Prices
(), Adhurim Haxhimusa
() and Mario Liebensteiner
Abstract: This paper seeks to investigate the current state of
market integration among European electricity day-ahead spot prices. We
provide reasoning that market integration brings about benefits, such as
lower average prices and increased welfare from allocative efficiency. Yet,
price convergence leads to higher prices in the low-price market and to
lower prices in the high-price market, which creates winners and losers and
thus makes the political implementation of market integration cumbersome.
In our empirical analysis, we utilize a large sample of hourly spot prices
of 25 European markets for the period 01.01.2010–30.06.2015 and combine it
with other relevant data such as interconnector capacities and the
existence of market coupling. Firstly, empirical results from cointegration
analysis indicate that market integration increased from 2010 to 2012 but
then declined until 2015, most likely due to increased feed-in from
intermittent renewables. Secondly, we empirically assess the speed of
adjustment from price shocks and reach the conclusion that the resulting
efficiency of integration is rather modest. In general, our findings
suggest that integration among European electricity markets has a large
potential for improvements from additional capacity investments and further
promotion of market coupling.
Keywords: Market integration, Spot Price, Convergence, Internal Market, Electricity; (follow links to similar papers)
JEL-Codes: F15,; L81,; L98,; Q48; (follow links to similar papers)
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