Cross-border trade in electricity

Werner Antweiler

Journal of International Economics, 2016, vol. 101, issue C, 42-51

Abstract: This paper develops a novel economic theory of two-way trade in a homogenous good, electricity. In this model of ‘reciprocal load smoothing,’ international trade provides insurance. As electricity demand is stochastic and correlated across jurisdictions, electric utilities can reduce their cost during peak periods by importing cheaper off-peak electricity from neighbouring jurisdictions. Two-way trade emerges in the presence of strongly convex marginal costs. Observed trade between Canadian provinces and US states strongly supports the theoretical model. Reciprocal load smoothing provides an economic rationale for integrating North America's fragmented interconnections into a continental ‘supergrid’ if technological progress in long-distance bulk transmission continues to reduce costs.

Keywords: Electricity; International trade; Two-way trade (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:101:y:2016:i:c:p:42-51

DOI: 10.1016/j.jinteco.2016.03.007

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