European market integration and price convergence: A panel quantile regression analysis of NordLink

Endre Bjørndal, Mette Bjørndal (), Isabel Hovdahl and Kyriaki Tselika ()
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Endre Bjørndal: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Mette Bjørndal: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/mette-helene-bjorndal/
Kyriaki Tselika: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/kyriaki-tselika/
Authors registered in the RePEc Author Service: Endre Jostein Bjørndal and Mette Helene Bjørndal

No 2025/19, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: The European Union aims to strengthen electricity market integration as part of its transition to a low-carbon energy system, with substantial investments in cross-border transmission infrastructure. This paper presents the first empirical analysis of a new interconnector, NordLink, on price convergence between southern Norway (NO2) and Germany. Using a novel panel quantile regression model, we estimate the impact of NordLink on the full distribution of hourly electricity prices in both markets. We find that the cable raised average prices in NO2 and lowered them in Germany, but with substantial heterogeneity across the price quantiles. In NO2, lower-quantile prices fell while upper-quantile prices rose. In Germany, the largest reductions occurred in the upper price quantiles. Regarding volatility, NordLink increased price fluctuations in NO2 and reduced them in Germany. We also find that the interconnector has altered the relationship between electricity prices and key fundamentals. Notably, electricity prices in NO2 have become substantially more exposed to gas prices post-NordLink, while Germany has become less exposed. Our findings highlight that market integration influences not only average prices, but also the dynamics and structure of electricity prices, with important implications for policymakers and market participants navigating the future of cross-border transmission in Europe.

Keywords: Electricity prices; econometric analysis; interconnector; price volatility; renewables (search for similar items in EconPapers)
JEL-codes: C31 C33 Q21 Q41 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2025-05-23
New Economics Papers: this item is included in nep-eec and nep-eur
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:nhhfms:2025_019

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