Convergence of Electricity Wholesale Prices in Europe?: A Kalman Filter Approach
AbstractThis study tests the hypothesis that the ongoing restructuring process in the European electricity sector, as well as market participants' adaptation to the new legal framework, have caused electricity wholesale day-ahead prices to converge towards arbitrage freeness. Using hourly cross-border capacity auction results at the Dutch-German and at the Danish-German border for the years 2002 to 2004, and the respective spot prices. We estimate a time-varying coefficient model based on the law of one price (LOP). The results of these estimations are used to calculate the speed of convergence towards the LOP. While the German-Dutch prices and the German-West Danish prices are clearly developing towards arbitrage freeness, the German and East Danish prices do not exhibit significant convergence.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 512.
Length: 27 p.
Date of creation: 2005
Date of revision:
Electricity prices; European integration; Time series analysis;
Find related papers by JEL classification:
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-29 (All new papers)
- NEP-EEC-2005-09-29 (European Economics)
- NEP-ENE-2005-09-29 (Energy Economics)
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- Derek Bunn & Georg Zachmann, 2010. "Inefficient arbitrage in inter-regional electricity transmission," Journal of Regulatory Economics, Springer, vol. 37(3), pages 243-265, June.
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- Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2006. "Deregulated Wholesale Electricity Prices in Europe," Working Papers 20061001, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica.
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