Can Merchant Interconnectors Deliver Lower and More Stable Prices? The Case of NorNed

Vladimir Parail

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper estimates the effect of the merchant interconnector between Norway and the Netherlands on the level and residual volatility of hourly day-ahead electricity prices in the two connected markets. The price effects are estimated using single equation ARMA models and the volatility effects are estimated using EGARCH models with multiplicative heteroskdasticity. Both the level and volatility effects on prices are found to be modest. This result implies that the majority of welfare gains resulting from trade across the interconnector are likely to be accrued to its owners, undermining the practical validity of the theoretical argument that lumpiness in transmission investment leads to a divergence between social and private benefits of transmission investment. This paper finds that, on the scale of NorNed, there is little evidence to suggest that transmission capacity between different markets cannot be provided competitively.

Keywords: merchant interconnectors; electricity prices; price volatility; time series; egarch (search for similar items in EconPapers)
JEL-codes: C22 G10 L9 L94 (search for similar items in EconPapers)
Date: 2009-11-13
New Economics Papers: this item is included in nep-ene
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://files.econ.cam.ac.uk/repec/cam/pdf/cwpe0947.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0947

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().