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Welfare and competition effects of electricity interconnection between Ireland and Great Britain

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  • Malaguzzi Valeri, Laura

Abstract

This study analyzes the effects of additional interconnection on welfare and competition in the Irish electricity market. I simulate the wholesale electricity markets of the island of Ireland and Great Britain for 2005. I find that in order for the two markets to be integrated in 2005, additional interconnection would have to be large. The amount of interconnection decreases for high costs of carbon, since this causes the markets to become more similar. This suggests that in the absence of strategic behavior of firms, most of the gains from trade derive not from differences in size between countries, but from technology differences and are strongly influenced by fuel and carbon costs. Social welfare increases with interconnection, although at a decreasing rate. As the amount of interconnection increases, there are also positive effects on competition in Ireland, the less competitive of the two markets. Finally, it is unlikely that private investors will pay for the optimal amount of interconnection since their returns are significantly smaller than the total social benefit of interconnection.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 37 (2009)
Issue (Month): 11 (November)
Pages: 4679-4688

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Handle: RePEc:eee:enepol:v:37:y:2009:i:11:p:4679-4688

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

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Keywords: Interconnection Electricity Ireland;

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References

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  1. Neuhoff, Karsten & Newbery, David, 2005. "Evolution of electricity markets: Does sequencing matter?," Utilities Policy, Elsevier, vol. 13(2), pages 163-173, June.
  2. Berenstein, Severin & Bushnell, James & Stoft, Steven, 2000. "The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry," Staff General Research Papers 13145, Iowa State University, Department of Economics.
  3. Hobbs, B.F. & Rijkers, F.A.M., 2005. "The More Cooperation, the More Competition? A Cournot Analysis of the Benefits of Electric Market Coupling," Cambridge Working Papers in Economics 0509, Faculty of Economics, University of Cambridge.
  4. Creti, Anna & Fabra, Natalia, 2007. "Supply security and short-run capacity markets for electricity," Energy Economics, Elsevier, vol. 29(2), pages 259-276, March.
  5. FitzGerald, John & Keeney, Mary J. & McCarthy, Niamh & O'Malley, Eoin & Scott, Susan, 2005. "Aspects of Irish Energy Policy," Research Series, Economic and Social Research Institute (ESRI), number PRS57.
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Cited by:
  1. Jonas Egerer & Friedrich Kunz & Christian von Hirschhausen, 2012. "Development Scenarios for the North and Baltic Sea Grid: A Welfare Economic Analysis," Discussion Papers of DIW Berlin 1261, DIW Berlin, German Institute for Economic Research.
  2. Curtis, John & di Cosmo, Valeria & Deane, Paul, 2014. "Climate Policy, Interconnection and Carbon Leakage: The Effect of Unilateral UK Policy on Electricity and GHG Emissions in Ireland," Papers RB2014/1/7, Economic and Social Research Institute (ESRI).
  3. Nepal, Rabindra & Jamasb, Tooraj, 2013. "Caught Between Theory and Practice: Government, Market and Regulatory Failures in Electricity," Cambridge Working Papers in Economics 1308, Faculty of Economics, University of Cambridge.
  4. McInerney, Celine & Bunn, Derek, 2013. "Valuation anomalies for interconnector transmission rights," Energy Policy, Elsevier, vol. 55(C), pages 565-578.
  5. FitzGerald, John, 2011. "A Review of Irish Energy Policy," Research Series, Economic and Social Research Institute (ESRI), number RS21.
  6. Muireann Á. Lynch & Richard Tol & Mark J. O’Malley, 2014. "Minimising costs and variability of electricity generation by means of optimal electricity interconnection utilisation," Working Paper Series 6814, Department of Economics, University of Sussex.
  7. Elisabetta Pellini, 2011. "Measuring the impact of market coupling on the Italian electricity market using ELFO++," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 133, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  8. O’Mahoney, Amy & Thorne, Fiona & Denny, Eleanor, 2013. "A cost-benefit analysis of generating electricity from biomass," Energy Policy, Elsevier, vol. 57(C), pages 347-354.
  9. Michiel de Nooij, 2010. "Social cost benefit analysis of interconnector investment: A critical appraisal," Bremen Energy Working Papers 0002, Bremer Energie Institut.
  10. Rabindra Nepal & John Foster, 2013. "Testing for Market Integration in the Australian National Electricity Market," Energy Economics and Management Group Working Papers 11-2013, School of Economics, University of Queensland, Australia.
  11. Gorecki, Paul K., 2011. "The Internal EU Electricity Market: Implications for Ireland," Research Series, Economic and Social Research Institute (ESRI), number RS23.
  12. de Nooij, Michiel, 2011. "Social cost-benefit analysis of electricity interconnector investment: A critical appraisal," Energy Policy, Elsevier, vol. 39(6), pages 3096-3105, June.
  13. O'Mahoney, Amy & Denny, Eleanor, 2011. "The Merit Order Effect of Wind Generation on the Irish Electricity Market," MPRA Paper 56043, University Library of Munich, Germany.
  14. Creti, Anna & Fumagalli, Eileen & Fumagalli, Elena, 2010. "Integration of electricity markets in Europe: Relevant issues for Italy," Energy Policy, Elsevier, vol. 38(11), pages 6966-6976, November.
  15. Jacques Pelkmans & Lionel Kapff, 2010. "Interconnector Investment for a Well-functioning Internal Market. What EU regime of regulatory incentives?," Bruges European Economic Research Papers 18, European Economic Studies Department, College of Europe.

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