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European market integration and price convergence: A panel quantile regression analysis of NordLink

Author

Listed:
  • Bjørndal, Endre

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Bjørndal, Mette

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Hovdahl, Isabel

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Tselika, Kyriaki

    (Dept. of Business and Management Science, Norwegian School of Economics)

Abstract

The European Union aims to strengthen electricity market integration as part of its transition to a low-carbon energy system, with substantial investments in cross-border transmission infrastructure. This paper presents the first empirical analysis of a new interconnector, NordLink, on price convergence between southern Norway (NO2) and Germany. Using a novel panel quantile regression model, we estimate the impact of NordLink on the full distribution of hourly electricity prices in both markets. We find that the cable raised average prices in NO2 and lowered them in Germany, but with substantial heterogeneity across the price quantiles. In NO2, lower-quantile prices fell while upper-quantile prices rose. In Germany, the largest reductions occurred in the upper price quantiles. Regarding volatility, NordLink increased price fluctuations in NO2 and reduced them in Germany. We also find that the interconnector has altered the relationship between electricity prices and key fundamentals. Notably, electricity prices in NO2 have become substantially more exposed to gas prices post-NordLink, while Germany has become less exposed. Our findings highlight that market integration influences not only average prices, but also the dynamics and structure of electricity prices, with important implications for policymakers and market participants navigating the future of cross-border transmission in Europe.

Suggested Citation

  • Bjørndal, Endre & Bjørndal, Mette & Hovdahl, Isabel & Tselika, Kyriaki, 2025. "European market integration and price convergence: A panel quantile regression analysis of NordLink," Discussion Papers 2025/19, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2025_019
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    More about this item

    Keywords

    Electricity prices; econometric analysis; interconnector; price volatility; renewables;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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