Regulation and electricity market integration: When trade introduces inefficiencies

Etienne Billette de Villemeur and Pierre-Olivier Pineau

Energy Economics, 2012, vol. 34, issue 2, 529-535

Abstract: Electricity markets vary greatly across jurisdictions, in terms of regulatory institutions, cost levels and environmental impacts. Integrating such different markets can lead to significant changes. This paper considers two jurisdictions, one with a regulated monopoly selling at average cost and one with a competitive market, and compares three different institutional regimes: autarky, a mixed-market structure with trade and a fully integrated market, where electricity is sold everywhere at marginal cost. We show that, in the second regime, the regulated monopoly always exports toward the jurisdiction pricing at marginal cost, up to inducing productive inefficiencies. By contrast, a shift from the second to the third regime, i.e. “integrated deregulation” yields a decrease in overall consumption. We identify the exact conditions under which the shift from one regime to the other results in environmental gains.

Keywords: Market integration; Regulation; Electricity trade; Environmental impacts (search for similar items in EconPapers)
JEL-codes: F14 F15 L50 L94 Q52 Q56 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:34:y:2012:i:2:p:529-535

DOI: 10.1016/j.eneco.2011.12.004

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