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Regulation and electricity market integration: When trade introduces inefficiencies

  • Billette de Villemeur, Etienne
  • Pineau, Pierre-Olivier

Electricity markets vary greatly across jurisdictions, in terms of regulatory institutions, cost levels and environmental impacts. Integrating such different markets can lead to significant changes. This paper considers two jurisdictions - one with a regulated monopoly selling at average cost and one with a competitive market - and compares three different institutional regimes: autarky, a mixed-market structure with trade and a fully integrated market, where electricity is sold at marginal cost. We show that, in the second regime, the regulated monopoly always exports toward the jurisdiction pricing at marginal cost, up to inducing productive inefficiencies. By contrast, a shift from the second to the third regime, i.e. "integrated deregulation" yields a decrease in overall consumption. We identify the exact conditions under which the shift from one regime to the other results in environmental gains.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41251.

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Date of creation: 2012
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Handle: RePEc:pra:mprapa:41251
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  11. Torstein Bye & Erling Holmøy & Kim Massey Heide, 2006. "Removing policy based comparative advantage for energy intensive production. Necessary adjustments of the real exchange rate and industry structure," Discussion Papers 462, Statistics Norway, Research Department.
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  16. Benjamin, Richard, 2007. "Principles for Interregional Transmission Expansion," The Electricity Journal, Elsevier, vol. 20(8), pages 36-47, October.
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