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Market coupling between electricity markets: theory and empirical evidence for the Italian–Slovenian interconnection

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Abstract

Since January 1, 2011 the electricity exchanges of Italy and Slovenia are working under a mechanism of market coupling for their respective day-ahead sessions. Similar mechanisms are being implemented in many European countries to foster the integration of power markets that eventually will merge into one large European exchange. This paper is one of the first works in which, by analyzing market results, we try and assess the degree of integration of the Italian and Slovenian electricity markets due to the market coupling policy. Empirical results are useful to evaluate the success of the EU Price Coupling of Regions policy and suggest further enhancements.

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Notes

  1. EU Directives 96/92/EC, 2003/54/EC and 2009/72/EC.

  2. See also EU Commission 2009.

  3. These provisions are contained into Regulation n.347/2013 of the European Parliament

  4. “Regulation establishing a Guideline on Capacity Allocation and Congestion Management”, entered into force on 15th August 2015

  5. Creti et al. (2010) present a table with a classification and examples of possible cross-border interactions.

  6. See Glachant (2010) and Chao and Peck (1996). Ehrenmann and Smeers (2005) evaluate various approaches to congestion management in the EU.

  7. Cooperation between a group of northern EU members begun in 1963 with the creation of Nordel organization. Since then, a long tradition of energy exchange, particularly between Sweden and Norway, was eased by the presence of a relatively high capacity interconnector.

  8. The Project is operated by seven Power Exchanges and joins the following countries: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and UK. The initiative started in 2009 and the PCR parties signed Cooperation Agreement in June 2012.

  9. In May 2015, the calculation of cross-border capacities in CWE has switched to a more efficient process called flow-based methodology.

  10. Parisio and Bosco (2008) analyze the allocation properties of coupling methods with particular reference to implicit auctions.

  11. The buyers at PX pay the unique national price which is the weighted average of zonal prices in case of congestions. Sellers receive the zonal price.

  12. Details about the Italian electricity industry are presented in Gianfreda et al. (2016a).

  13. When congestions occur, zonal configurations emerge as consequence of market splitting and the price paid to producers differs across zones.

  14. The share of capacity allocated through the market coupling mechanism was stable at 95 % in 2012.

  15. In 2011 the flows resulting from market coupling were 100% efficient.

  16. Activities connected with energy exchange were under the responsibility of Borzen until November 2008, when responsibility was passed to the newly established company BSP Regional Energy Exchange, which was founded by Borzen and Eurex, the international derivatives exchange.

  17. Data are taken from the Italian market operator website: http://www.mercatolettrico.org.

  18. The reader not acquainted with shrinkage and regularization methods can refer to the excellent book of Hastie et al. (2009, Section 3.4). The models in this section of the paper can be interpreted as logistic regressions for which the selection of the significant coefficients takes part during the estimation and not by means of post-estimation tests.

  19. Looking at Table 1, we notice that the event of strong market integration decreased during the sample period. The two results are therefore mutually consistent.

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  1. DEMS, University of Milan-Bicocca, Milan, Italy

    Lucia Parisio & Matteo Pelagatti

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  1. Lucia Parisio
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  2. Matteo Pelagatti
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Correspondence to Lucia Parisio.

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Parisio, L., Pelagatti, M. Market coupling between electricity markets: theory and empirical evidence for the Italian–Slovenian interconnection. Econ Polit 36, 527–548 (2019). https://doi.org/10.1007/s40888-018-0126-2

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