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Cross-border trade in electricity

Listed author(s):
  • Antweiler, Werner
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    This paper develops a novel economic theory of two-way trade in a homogenous good, electricity. In this model of ‘reciprocal load smoothing,’ international trade provides insurance. As electricity demand is stochastic and correlated across jurisdictions, electric utilities can reduce their cost during peak periods by importing cheaper off-peak electricity from neighbouring jurisdictions. Two-way trade emerges in the presence of strongly convex marginal costs. Observed trade between Canadian provinces and US states strongly supports the theoretical model. Reciprocal load smoothing provides an economic rationale for integrating North America's fragmented interconnections into a continental ‘supergrid’ if technological progress in long-distance bulk transmission continues to reduce costs.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0022199616300423
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    Article provided by Elsevier in its journal Journal of International Economics.

    Volume (Year): 101 (2016)
    Issue (Month): C ()
    Pages: 42-51

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    Handle: RePEc:eee:inecon:v:101:y:2016:i:c:p:42-51
    DOI: 10.1016/j.jinteco.2016.03.007
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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