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Market Integration, Efficiency, and Interconnectors: The Irish Single Electricity Market

Rabindra Nepal () and Tooraj Jamasb

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

Abstract: Interconnections can be an effective way to increase competition in wholesale electricity markets in particular for smaller markets with few actors. This paper quantitatively examines the potentials for interconnections in the Irish Single Electricity Market (SEM). We use a time-varying Kalman filter technique to assess the degree of market integration between SEM and other large, mature and interconnected wholesale electricity markets in Europe. The results indicate a low degree of market integration between SEM and other European markets and thereby raising the possibility to benefit from increased electricity trade. As wholesale prices in SEM remain relatively high and volatile; a larger interconnector capacity can promote competition, close the gap with the European wholesale prices, improve security of supply, and mitigate price volatility. The results indicate that wholesale spot trading of renewable may not increase market integration. The results suggest that an interconnector capacity amounting to about 21% of generation capacity in SEM is likely to achieve an integration coefficient of 0.86 similar to what currently exists between the markets in Austria and the Netherlands.

Keywords: Interconnection; wholesale markets; market integration; competition (search for similar items in EconPapers)
JEL-codes: L94 C22 D02 G1 (search for similar items in EconPapers)
Date: 2011-07-21
New Economics Papers: this item is included in nep-ene and nep-reg
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