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The effect of flow-based market coupling on cross-border exchange volumes and price convergence in Central-Western European electricity markets

Marten Ovaere, Michiel Kenis, Kenneth Van den Bergh, Kenneth Bruninx and Erik Delarue
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Erik Delarue: -

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: Since 2015 available cross-border transmission capacity is determined using flowbased market coupling (FBMC) in the day-ahead electricity markets of Central Western Europe. This paper empirically estimates the effect of introducing FBMC on electricity price convergence and cross-border exchange volumes. In the month following the introduction of FBMC, hourly cross-border exchange volumes increased by 1,700 MWh/h, while price convergence between countries increased by 12.2 e/MWh. Since then, observed cross-border exchange volumes decreased to 400 MWh/h below their levels before the introduction of FBMC by the end of 2017. However, when controlling for changing market conditions in the years following the introduction of FBMC, we find that FBMC still has a persistent positive effect of around 1,000 MWh/h on hourly cross-border exchange volumes and of 2 e/MWh on price convergence. Finally, we provide suggestive evidence that decreased commercial transmission capacity on critical branches might have contributed to the decline of the benefits over time. This paper is useful for policymakers, regulators, TSOs, and other stakeholders in light of the extension of FBMC to other regions as it is the target methodology for coupling market zones in the European single electricity market.

Keywords: flow-based market coupling; regression discontinuity; electricity transmission; electricity prices; congestion management; power systems (search for similar items in EconPapers)
JEL-codes: L94 Q41 Q42 Q5 Q54 Q58 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2022-03
New Economics Papers: this item is included in nep-ene and nep-reg
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