IDEAS home Printed from https://ideas.repec.org/p/hhs/nhhfms/2025_019.html

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
    as

    Download full text from publisher

    File URL: https://hdl.handle.net/11250/3197495
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jörg Breitung & Samarjit Das, 2005. "Panel unit root tests under cross‐sectional dependence," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(4), pages 414-433, November.
    2. repec:aen:journl:ej37-1-bunn is not listed on IDEAS
    3. Do, Hung Xuan & Nepal, Rabindra & Jamasb, Tooraj, 2020. "Electricity market integration, decarbonisation and security of supply: Dynamic volatility connectedness in the Irish and Great Britain markets," Energy Economics, Elsevier, vol. 92(C).
    4. Derek Bunn & Arne Andresen & Dipeng Chen & Sjur Westgaard, 2016. "Analysis and Forecasting of Electricity Price Risks with Quantile Factor Models," The Energy Journal, , vol. 37(1), pages 101-122, January.
    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. Hasan, Mudassar & Arif, Muhammad & Naeem, Muhammad Abubakr & Ngo, Quang-Thanh & Taghizadeh–Hesary, Farhad, 2021. "Time-frequency connectedness between Asian electricity sectors," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 208-224.
    2. George Halkos & Iacovos Psarianos, 2016. "Exploring the effect of including the environment in the neoclassical growth model," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 18(3), pages 339-358, July.
    3. repec:use:tkiwps:3232 is not listed on IDEAS
    4. Palm, Franz C. & Smeekes, Stephan & Urbain, Jean-Pierre, 2011. "Cross-sectional dependence robust block bootstrap panel unit root tests," Journal of Econometrics, Elsevier, vol. 163(1), pages 85-104, July.
    5. repec:afa:wpaper:aesriwp11 is not listed on IDEAS
    6. Amit Nandan & Hrushikesh Mallick, 2022. "Do growth-promoting factors induce income inequality in a transitioning large developing economy? An empirical evidence from Indian states," Economic Change and Restructuring, Springer, vol. 55(2), pages 1109-1139, May.
    7. Xie, Qichang & Luo, Chao & Cong, Xiaoping & Wang, Xu, 2024. "Volatility connectedness and its determinants of global energy stock markets," Economic Systems, Elsevier, vol. 48(2).
    8. Simplice A. Asongu & Joseph Nnanna & Paul N. Acha-Anyi, 2021. "The Openness Hypothesis in the Context of Economic Development in Sub-Saharan Africa: The Moderating Role of Trade Dynamics on FDI," The International Trade Journal, Taylor & Francis Journals, vol. 35(4), pages 336-359, July.
    9. Uk Heo & Min Ye, 2016. "Defense Spending and Economic Growth around the Globe: The Direct and Indirect Link," International Interactions, Taylor & Francis Journals, vol. 42(5), pages 774-796, October.
    10. Christoph Hanck, 2013. "An Intersection Test for Panel Unit Roots," Econometric Reviews, Taylor & Francis Journals, vol. 32(2), pages 183-203, February.
    11. Lyu, Chenyan & Do, Hung Xuan & Nepal, Rabindra & Jamasb, Tooraj, 2024. "Volatility spillovers and carbon price in the Nordic wholesale electricity markets," Energy Economics, Elsevier, vol. 134(C).
    12. Tan, Juan & Zou, Xing-Yun & Zhang, Xin & Chang, Chun-Ping, 2025. "Does national ESG performance move together with climate warming?," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 19-29.
    13. Mitze, Timo & Matz, Florian, 2015. "Public debt and growth in German federal states: What can Europe learn?," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 208-228.
    14. Chien, Fengsheng & Anwar, Ahsan & Hsu, Ching-Chi & Sharif, Arshian & Razzaq, Asif & Sinha, Avik, 2021. "The role of information and communication technology in encountering environmental degradation: Proposing an SDG framework for the BRICS countries," Technology in Society, Elsevier, vol. 65(C).
    15. Nemlioglu, Ilayda & Mallick, Sushanta, 2020. "Does multilateral lending aid capital accumulation? Role of intellectual capital and institutional quality," Journal of International Money and Finance, Elsevier, vol. 108(C).
    16. Baffour Gyau, Emmanuel & Appiah, Michael & Gyamfi, Bright Akwasi & Achie, Theodoria & Naeem, Muhammad Abubakr, 2024. "Transforming banking: Examining the role of AI technology innovation in boosting banks financial performance," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    17. Gökgöz, Fazıl & Yücel, Öykü, 2025. "Measuring the long-term impact of wind, run-of-river, solar renewable energy alternatives on market clearing prices," Renewable Energy, Elsevier, vol. 241(C).
    18. Michael L. Polemis & Mike G. Tsionas, 2019. "Bayesian nonlinear panel cointegration: an empirical application to the EKC hypothesis," Letters in Spatial and Resource Sciences, Springer, vol. 12(2), pages 113-120, August.
    19. Charles Shaaba Saba & Nicholas Ngepah, 2022. "ICT Diffusion, Industrialisation and Economic Growth Nexus: an International Cross-country Analysis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 2030-2069, September.
    20. Joakim Westerlund & Johan Blomquist, 2013. "A modified LLC panel unit root test of the PPP hypothesis," Empirical Economics, Springer, vol. 44(2), pages 833-860, April.
    21. Arndt Christian & Buch Claudia M & Schnitzer Monika E, 2010. "FDI and Domestic Investment: An Industry-Level View," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-22, July.
    22. Ding Nan & Pomi Shahbaz & Shamsheer ul Haq & Muhammad Nadeem & Muhammad Imran, 2023. "The Economies’ Ability to Produce Diversified and Complex Goods to Meet the Global Competition: Role of Gross Value Chain, Institutional Quality, and Human Capital," Sustainability, MDPI, vol. 15(8), pages 1-17, April.

    More about this item

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:hhs:nhhfms:2025_019. 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: Stein Fossen (email available below). General contact details of provider: https://edirc.repec.org/data/dfnhhno.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.