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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;

References

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  1. Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," Working Papers 0304, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  2. 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.
  3. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
  4. 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.
  5. Creti, Anna & Fabra, Natalia, 2007. "Supply security and short-run capacity markets for electricity," Energy Economics, Elsevier, vol. 29(2), pages 259-276, March.
  6. Neuhoff, Karsten & Newbery, David, 2005. "Evolution of electricity markets: Does sequencing matter?," Utilities Policy, Elsevier, vol. 13(2), pages 163-173, June.
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Citations

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Cited by:
  1. 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.
  2. 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.
  3. Michiel de Nooij, 2010. "Social cost benefit analysis of interconnector investment: A critical appraisal," Bremen Energy Working Papers 0002, Bremer Energie Institut.
  4. 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.
  5. FitzGerald, John, 2011. "A Review of Irish Energy Policy," Research Series, Economic and Social Research Institute (ESRI), number RS21.
  6. 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.

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