Electricity Market Coupling in Europe: Status Quo and Future Challenges
Roland Füss (),
Steffen Mahringer and
Marcel Prokopczuk ()
Chapter 5 in Handbook of Energy Finance:Theories, Practices and Simulations, 2020, pp 93-120 from World Scientific Publishing Co. Pte. Ltd.
In electricity markets globally, market participants and policymakers increasingly focus on integrating adjacent, yet separate market areas via cross-border trade in electricity. Based on a discussion of the institutional framework for organizing cross-border trade, this chapter analyzes how spot and futures prices for wholesale electricity are affected by different degrees of market integration. We first contrast the two main mechanisms to allocate transmission capacity between neighboring markets: explicit and implicit auctions. Subsequently, we study the impact of these allocation schemes on the empirical price dynamics of major electricity markets in Europe. Our empirical analysis thereby confirms that under market coupling, economically inefficient cross-border flows in the wrong direction can be avoided. From a policy point of view, however, we show that further market integration can be hindered by individual energy market regulation on a national level, which may be opposed to supra-national frameworks such as market coupling.
Keywords: Energy Finance; Financial and Economic Modeling; Volatility; Forecasting; Quantitative Finance; Energy Markets (search for similar items in EconPapers)
JEL-codes: G20 G32 Q40 (search for similar items in EconPapers)
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