European electricity wholesale price convergence: Investigating Flow-Based Market Coupling efficiency

Amady Léchenet

No 2025-41, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This paper investigates the impact of extending Flow-Based Market Coupling (FBMC) on electricity price convergence in Europe. Market coupling mechanisms, particularly FBMC, play a crucial role in harmonizing electricity prices between bidding zones by optimizing cross-border capacity allocation. We analyze the transition from the Available Transfer Capacity (ATC) approach to FBMC, highlighting its advantages for improving price con- vergence. Using daily day-ahead electricity prices from 12 member countries of the Core Capacity Calculation Region (CCR), we construct a price dispersion indicator. Our results show a temporary reduction in price spreads in the region Core Europe following the market coupling reform. The short-term effect is significant but transitory, whereas structural deter- minants such as gas prices remain dominant. Comparing countries that adopted Flow-Based (FB) mechanism in 2015 with those that joined in 2022, we find evidence of a permanent and significant reduction in price spreads for the late adopters.

Keywords: Electricity wholesale markets; market coupling; price convergence (search for similar items in EconPapers)
JEL-codes: L94 Q41 Q42 Q48 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2025
New Economics Papers: this item is included in nep-eec, nep-ene and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2025-41

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