IDEAS home Printed from https://ideas.repec.org/p/enp/wpaper/eprg1121.html
   My bibliography  Save this paper

Market Integration, Efficiency, and Interconnectors: The Irish Single Electricity Market

Author

Listed:
  • Rabindra Nepal

    (Department of Economics, Heriot-Watt University)

  • Tooraj Jamasb

    (Department of Economics, Heriot-Watt University)

Abstract

Interconnections can be an effective way to increase competition in wholesale electricity markets in particular for smaller markets with few actors. This paper quantitatively examines the potentials for interconnections in the Irish Single Electricity Market (SEM). We use a time-varying Kalman filter technique to assess the degree of market integration between SEM and other large, mature and interconnected wholesale electricity markets in Europe. The results indicate a low degree of market integration between SEM and other European markets and thereby raising the possibility to benefit from increased electricity trade. As wholesale prices in SEM remain relatively high and volatile; a larger interconnector capacity can promote competition, close the gap with the European wholesale prices, improve security of supply, and mitigate price volatility. The results indicate that wholesale spot trading of renewable may not increase market integration. The results suggest that an interconnector capacity amounting to about 21% of generation capacity in SEM is likely to achieve an integration coefficient of 0.86 similar to what currently exists between the markets in Austria and the Netherlands.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Rabindra Nepal & Tooraj Jamasb, 2011. "Market Integration, Efficiency, and Interconnectors: The Irish Single Electricity Market," Working Papers EPRG 1121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
  • Handle: RePEc:enp:wpaper:eprg1121
    as

    Download full text from publisher

    File URL: https://www.jbs.cam.ac.uk/wp-content/uploads/2023/12/eprg-wp1121.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bomhoff, E.J., 1992. "Four econometric fashions and the Kalman filter alternative : A simulation study," Discussion Paper 1992-27, Tilburg University, Center for Economic Research.
    2. Gert Brunekreeft & David Newbery, 2006. "Should merchant transmission investment be subject to a must-offer provision?," Journal of Regulatory Economics, Springer, vol. 30(3), pages 233-260, November.
    3. Stigler, George J & Sherwin, Robert A, 1985. "The Extent of the Market," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 555-585, October.
      • Stigler, George J. & Sherwin, Robert A., 1983. "The Extent of the Market," Working Papers 31, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    4. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    5. Bernard, Andrew B. & Durlauf, Steven N., 1996. "Interpreting tests of the convergence hypothesis," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 161-173.
    6. Federico, Giovanni, 2007. "Market integration and market efficiency: The case of 19th century Italy," Explorations in Economic History, Elsevier, vol. 44(2), pages 293-316, April.
    7. Nicolosi, S., 2010. "Wind power integration, negative prices and power system flexibility - An empirical analysis of extreme events in Germany," MPRA Paper 31834, University Library of Munich, Germany.
    8. Paul Klemperer, 2007. "Bidding Markets," Journal of Competition Law and Economics, Oxford University Press, vol. 3(1), pages 1-47.
    9. Turvey, Ralph, 2006. "Interconnector economics," Energy Policy, Elsevier, vol. 34(13), pages 1457-1472, September.
    10. Engel, Charles & Rogers, John H, 2001. "Violating the Law of One Price: Should We Make a Federal Case Out of It?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 1-15, February.
    11. Paul Joskow, 2003. "Electricity Sector Restructuring and Competition: Lessons Learned," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 548-558.
    12. Karadeloglou, Pavlos, 1999. "Agricultural Prices in Transition Economies: The Case of Bulgaria and Slovenia," Economic Change and Restructuring, Springer, vol. 32(1), pages 45-66.
    13. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    14. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    16. Anne Neumann & Boriss Siliverstovs & Christian von Hirschhausen, 2006. "Convergence of European spot market prices for natural gas? A real-time analysis of market integration using the Kalman Filter," Applied Economics Letters, Taylor & Francis Journals, vol. 13(11), pages 727-732.
    17. John Cuddington & Zhongmin Wang, 2006. "Assessing the Degree of Spot Market Integration for U.S. Natural Gas: Evidence from Daily Price Data," Journal of Regulatory Economics, Springer, vol. 29(2), pages 195-210, March.
    18. Peter Prazmowski, 2005. "A recursive cointegration test using the Kalman filter and its application to fiscal equilibrium in the Dominican Republic," Applied Economics Letters, Taylor & Francis Journals, vol. 12(3), pages 155-160.
    19. Nicolosi, Marco, 2010. "Wind power integration and power system flexibility-An empirical analysis of extreme events in Germany under the new negative price regime," Energy Policy, Elsevier, vol. 38(11), pages 7257-7268, November.
    20. Osama J. A. R. Abu Shair, 1997. "Privatization and Development," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-25374-6, September.
    21. Bomhoff, E.J., 1992. "Four Econometric Fashions and the Kalman Filter Alternative," RCER Working Papers 324, University of Rochester - Center for Economic Research (RCER).
    22. William W. Hogan, 1997. "A Market Power Model with Strategic Interaction in Electricity Networks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 107-141.
    23. Owen A. Lamont & Richard H. Thaler, 2003. "Anomalies: The Law of One Price in Financial Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 191-202, Fall.
    24. Richard J. Green, 2008. "Electricity Wholesale Markets: Designs Now and in a Low-carbon Future," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 95-124.
    25. Zachmann, Georg, 2008. "Electricity wholesale market prices in Europe: Convergence?," Energy Economics, Elsevier, vol. 30(4), pages 1659-1671, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nepal, Rabindra & Jamasb, Tooraj, 2012. "Interconnections and market integration in the Irish Single Electricity Market," Energy Policy, Elsevier, vol. 51(C), pages 425-434.
    2. Growitsch Christian & Nepal Rabindra & Stronzik Marcus, 2015. "Price Convergence and Information Efficiency in German Natural Gas Markets," German Economic Review, De Gruyter, vol. 16(1), pages 87-103, February.
    3. Rabindra Nepal and John Foster, 2016. "Testing for Market Integration in the Australian National Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    4. Joseph Nyangon & John Byrne & Job Taminiau, 2017. "An assessment of price convergence between natural gas and solar photovoltaic in the U.S. electricity market," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 6(3), May.
    5. Wang, Peijie & Brand, Steven, 2015. "A new approach to estimating value–income ratios with income growth and time-varying yields," European Journal of Operational Research, Elsevier, vol. 242(1), pages 182-187.
    6. Kühl, Michael, 2007. "Cointegration in the foreign exchange market and market efficiency since the introduction of the Euro: Evidence based on bivariate cointegration analyses," University of Göttingen Working Papers in Economics 68, University of Goettingen, Department of Economics.
    7. Bastianin, Andrea & Galeotti, Marzio & Polo, Michele, 2019. "Convergence of European natural gas prices," Energy Economics, Elsevier, vol. 81(C), pages 793-811.
    8. Kühl, Michael, 2010. "Bivariate cointegration of major exchange rates, cross-market efficiency and the introduction of the Euro," Journal of Economics and Business, Elsevier, vol. 62(1), pages 1-19, January.
    9. Ekaterina Dukhanina & Olivier Massol, 2017. "Spatial Integration of Natural Gas Markets A Litterature Review," Working Papers hal-03187890, HAL.
    10. Lee, Chien-Chiang & Zeng, Jhih-Hong, 2011. "Revisiting the relationship between spot and futures oil prices: Evidence from quantile cointegrating regression," Energy Economics, Elsevier, vol. 33(5), pages 924-935, September.
    11. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2010. "Long-run relations in european electricity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 805-832.
    12. Aatola, Piia & Ollikainen, Markku & Toppinen, Anne, 2013. "Impact of the carbon price on the integrating European electricity market," Energy Policy, Elsevier, vol. 61(C), pages 1236-1251.
    13. repec:got:cegedp:68 is not listed on IDEAS
    14. Growitsch, Christian & Stronzik, Marcus & Nepal, Rabindra, 2010. "Integration des deutschen Gasgroßhandelsmarktes," WIK Discussion Papers 333, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    15. Manolis Kavussanos & Ilias Visvikis & David Menachof, 2005. "The Unbiasedness Hypothesis in the Freight Forward Market: Evidence from Cointegration Tests," Review of Derivatives Research, Springer, vol. 7(3), pages 241-266, October.
    16. Xiaojie Xu, 2017. "The rolling causal structure between the Chinese stock index and futures," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(4), pages 491-509, November.
    17. Gebre-Mariam, Yohannes Kebede, 2011. "Testing for unit roots, causality, cointegration, and efficiency: The case of the northwest US natural gas market," Energy, Elsevier, vol. 36(5), pages 3489-3500.
    18. Frank Asche, 2001. "Testing the effect of an anti-dumping duty: The US salmon market," Empirical Economics, Springer, vol. 26(2), pages 343-355.
    19. Böckers, Veit & Heimeshoff, Ulrich, 2014. "The extent of European power markets," Energy Economics, Elsevier, vol. 46(C), pages 102-111.
    20. Vera Jotanovic & Rita Laura D’Ecclesia, 2021. "The European gas market: new evidences," Annals of Operations Research, Springer, vol. 299(1), pages 963-999, April.
    21. Osmani Teixeira de Carvalho de Guillén & Carlos Hamilton Vasconcelos Araújo, 2005. "O Mecanismo De Transmissão Da Taxa De Câmbio Para Índices De Preços: Uma Análise Vecm Para O Brasil," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33rd Brazilian Economics Meeting] 034, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

    More about this item

    Keywords

    interconnection; wholesale markets; market integration; competition;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • G1 - Financial Economics - - General Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:enp:wpaper:eprg1121. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ruth Newman (email available below). General contact details of provider: https://edirc.repec.org/data/jicamuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.