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Cross-border trade in electricity


  • Antweiler, Werner


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.

Suggested Citation

  • Antweiler, Werner, 2016. "Cross-border trade in electricity," Journal of International Economics, Elsevier, vol. 101(C), pages 42-51.
  • Handle: RePEc:eee:inecon:v:101:y:2016:i:c:p:42-51 DOI: 10.1016/j.jinteco.2016.03.007

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    References listed on IDEAS

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    Cited by:

    1. Arina Nikandrova & Jevgenijs Steinbuks, 2017. "Contracting for the second best in dysfunctional electricity markets," Journal of Regulatory Economics, Springer, vol. 51(1), pages 41-71, February.
    2. Crampes, Claude & Salant, David, 2018. "A multi-regional model of electric resource adequacy," TSE Working Papers 18-877, Toulouse School of Economics (TSE).
    3. Dagoumas, Athanasios S. & Koltsaklis, Nikolasos E. & Panapakidis, Ioannis P., 2017. "An integrated model for risk management in electricity trade," Energy, Elsevier, vol. 124(C), pages 350-363.

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    Electricity; International trade; Two-way trade;


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