Abstract
In the past, energy networks (grids) were nationally organized. The grids were linked by interconnectors. The capacities of the interconnectors were limited and only used to counter an imbalance in one of the grids. Governments fixed the prices and there was no energy price risk. Liberalization of the market introduced prices that fluctuate every moment; with the liberalization, energy price risk was introduced. The more volatile the energy prices, the larger the risk for market participants. Market coupling links the former nationally organized markets, which may cause a reduction in the volatility of the energy prices. At first the TSOs (Transmission System Operators) sold connector capacity by so called explicit auction, separate from the electricity auction. With the mechanism of explicit auction it was relatively easy to realize a market based allocation of scarce limited interconnector capacity on adjacent borders. Explicit auctions however do not realize the optimal result. In due time, they are replaced by so-called implicit auctions where the interconnectors’ capacities are automatically allocated in such a way that electricity price differences between countries are minimized. This implicit mechanism is also referred to as market coupling. In this chapter the effect of market coupling on market prices is investigated in the observed period, 1 January 2005–31 March 2011, for Scandinavia (South), The Netherlands, Belgium and France. It is found that due to market coupling the price differences between the markets diminish.
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- 1.
Information about the history of Nord Pool can be found on http://www.nordpoolspot.com/about/history
- 2.
CWE and Nordic market regions were coupled based on an interim implicit coupling mechanism since a quick solution for implicit market coupling of these regions needed to be available at the time of starting CWE MC. This interim solution produces better results than the other available solution at that time for coupling the regions concerned, which was not sufficient to be continued when CWE MC would GO-live. The interim variant for coupling CWE and Nordic regions is planned to be replaced by an enduring solution (NWE Enduring market coupling) that will realize the final, optimal results for coupling CWE, Nordic (and also UK) markets.
References
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Appendices
Appendix A.1 Event 1
The difference in volatility (a), off-peak prices (b) and peak prices (c) between The Netherlands and France in the period 21 November 2005–21 November 2007
Appendix A.2 Event 2
The difference in volatility (a), off-peak prices (b) and peak prices (c) between The Netherlands and Norway in the period 5 May 2007–5 May 2009
Appendix A.3 Event 1 Cumulative distributions
Cumulative distributions difference between The Netherlands (NL) and France (FR) in daily volatility (a), off-peak hours (b) and peak hours (c) one year before and one year after the moment of coupling 21 November 2006
Appendix A.4 Event 2 Cumulative distributions
Cumulative distributions difference between The Netherlands (NL) and Norway (NO) in daily volatility (a), off-peak hours (b) and peak hours (c) one year before and one year after the moment of coupling 21 November 2006
Appendix A.5 Volatility
The volatility in Dutch electricity prices (a) and Norwegian electricity prices (b) during period 5 May 2007–5 May 2009
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Dorsman, A., Franx, G.J., Pottuijt, P. (2013). Imperfection of Electricity Networks. In: Dorsman, A., Simpson, J., Westerman, W. (eds) Energy Economics and Financial Markets. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-30601-3_12
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DOI: https://doi.org/10.1007/978-3-642-30601-3_12
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