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European electricity wholesale price convergence: Investigating Flow-Based Market Coupling efficiency

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  • Amady Léchenet

Abstract

This paper investigates the impact of extending Flow-Based Market Coupling (FBMC) on electricity price convergence in Europe. Market coupling mechanisms, particularly FBMC, play a crucial role in harmonizing electricity prices between bidding zones by optimizing cross-border capacity allocation. We analyze the transition from the Available Transfer Capacity (ATC) approach to FBMC, highlighting its advantages for improving price con- vergence. Using daily day-ahead electricity prices from 12 member countries of the Core Capacity Calculation Region (CCR), we construct a price dispersion indicator. Our results show a temporary reduction in price spreads in the region Core Europe following the market coupling reform. The short-term effect is significant but transitory, whereas structural deter- minants such as gas prices remain dominant. Comparing countries that adopted Flow-Based (FB) mechanism in 2015 with those that joined in 2022, we find evidence of a permanent and significant reduction in price spreads for the late adopters.

Suggested Citation

  • Amady Léchenet, 2025. "European electricity wholesale price convergence: Investigating Flow-Based Market Coupling efficiency," EconomiX Working Papers 2025-41, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2025-41
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    Keywords

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    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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