Cross-Border Technology Differences and Trade Barriers: Evidence from German and French Electricity Markets

Klaus Gugler () and Adhurim Haxhimusa ()
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Klaus Gugler: Department of Economics, Vienna University of Economics and Business
Adhurim Haxhimusa: Research Institute for Regulatory Economics, Vienna University of Economics and Business

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: Using hourly data, we show that the convergence of German and French electricity spot prices depends on the employed generation mix structure, on the trade (export/import) capacity between the two countries, and on characteristics of neighbouring markets. Only when German and French electricity markets employ "similar" generation mixes price spreads vanish, and the likelihood for congestion of electricity flows is significantly reduced. This implies that, at least, a part of the convergence that was documented in recent literature is spurious, because it is not (only) driven by the forces of arbitrage, but by the similarity of the generation structures. The direction of congestion matters in this regard. Furthermore, we document consistent evidence for the most important predictions of trade theory if markets are characterized by increasing marginal cost (i.e. supply) curves and limited cross-border capacities.

Keywords: Market Integration; Electricity; Renewables; Technology Differences; Jaffe Index (search for similar items in EconPapers)
JEL-codes: D47 F15 L81 L98 Q42 Q48 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-ene, nep-eur, nep-int and nep-reg
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Citations: View citations in EconPapers (2)

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