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Regulation and electricity market integration: When trade introduces inefficiencies

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  • Billette de Villemeur, Etienne
  • Pineau, Pierre-Olivier

Abstract

Electricity markets vary greatly across jurisdictions, in terms of regulatory institutions, cost levels and environmental impacts. Integrating such different markets can lead to significant changes. This paper considers two jurisdictions, one with a regulated monopoly selling at average cost and one with a competitive market, and compares three different institutional regimes: autarky, a mixed-market structure with trade and a fully integrated market, where electricity is sold everywhere at marginal cost. We show that, in the second regime, the regulated monopoly always exports toward the jurisdiction pricing at marginal cost, up to inducing productive inefficiencies. By contrast, a shift from the second to the third regime, i.e. “integrated deregulation” yields a decrease in overall consumption. We identify the exact conditions under which the shift from one regime to the other results in environmental gains.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): 2 ()
Pages: 529-535

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:2:p:529-535

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Market integration; Regulation; Electricity trade; Environmental impacts;

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References

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Cited by:
  1. Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2013. "Integrating Thermal and Hydro Electricity Markets: Economic and Environmental Costs of not Harmonizing Pricing Rules," MPRA Paper 55619, University Library of Munich, Germany.

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