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Electricity prices and cross-border trade: Volume and strategy effects

  • Parisio, Lucia
  • Bosco, Bruno

In this paper we derive equilibrium bid functions in isolated domestic electricity markets and then analyse their modifications when cross-border trade among them is managed using the implicit auction method. We show that cross-border trade can induce price convergence across countries and thereby reallocate gains and losses as a result of two concomitant effects: a "volume" effect due to the mere increase/decrease of demand and supply in each market and a "bid effect" due to the modifications of bid functions brought about by interconnection. The latter effect can either contrast or reinforce the former. We derive conditions affecting the net result.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 4 (July)
Pages: 1760-1775

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Handle: RePEc:eee:eneeco:v:30:y:2008:i:4:p:1760-1775
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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  1. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
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  4. SMEERS, Yves & WEI, Jing-Yuan, 1997. "Spatially oligopolistic model with nodal opportunity cost pricing for transmission capacity reservations," CORE Discussion Papers 1997026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  6. Newbery, D. M., 1997. "Competition, Contracts and Entry in the Electricity Spot Market," Cambridge Working Papers in Economics 9707, Faculty of Economics, University of Cambridge.
  7. Brunekreeft, G. & Neuhoff, K. & Newbery, D., 2004. "Electricity transmission: an overview of the current debate," Cambridge Working Papers in Economics 0463, Faculty of Economics, University of Cambridge.
  8. Green, Richard & Newbery, David M G, 1991. "Competition in the British Electricity Spot Market," CEPR Discussion Papers 557, C.E.P.R. Discussion Papers.
  9. Neuhoff, K., 2003. "Integrating Transmission and Energy Markets Mitigates Market Power," Cambridge Working Papers in Economics 0310, Faculty of Economics, University of Cambridge.
  10. Giovanni Fraquelli & Massimiliano Piacenza & Davide Vannoni, 2004. "Scope and scale economies in multi-utilities: evidence from gas, water and electricity combinations," Applied Economics, Taylor & Francis Journals, vol. 36(18), pages 2045-2057.
  11. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
  12. Parisio, Lucia & Bosco, Bruno, 2003. "Market Power and the Power Market: Multi-unit Bidding and (In)Efficiency in Electricity Auctions," International Tax and Public Finance, Springer, vol. 10(4), pages 377-401, August.
  13. Bushnell, James, 1999. "Transmission Rights and Market Power," The Electricity Journal, Elsevier, vol. 12(8), pages 77-85, October.
  14. Ehrenmann, Andreas & Smeers, Yves, 2005. "Inefficiencies in European congestion management proposals," Utilities Policy, Elsevier, vol. 13(2), pages 135-152, June.
  15. Garcia-Diaz, Anton & Marin, Pedro L., 2003. "Strategic bidding in electricity pools with short-lived bids: an application to the Spanish market," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 201-222, February.
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