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Increasing Market Interconnection: An analysis of the Italian Electricity Spot Market

Author

Listed:
  • Federico Boffa

    (Department of Legal and Economic Studies, University of Macerata)

  • Viswanath Pingali

    (Senior Manager, Dr. Reddy’s Laboratories, Hyderabad, India)

  • Davide Vannoni

    (Department of Economics and Public Finance "G. Prato", University of Torino)

Abstract

In this paper we estimate the benefits resulting from interconnecting the Italian electricity spot market. The market is currently divided into two geographic zones - North and South - with limited interzonal transmission capacity that often induces congestion, and hence potential inefficiency. By simulating a fully interconnected market, we predict that the total spot market expenditure would reduce substantially. Moreover, since savings do not increase linearly with the size of new transmission capacity, even a slight increment to transmission capacity is found to bring substantial benefits to end users. Finally, our analysis shows that the (partly State owned) dominant firm in the market is not maximizing short-term profits.

Suggested Citation

  • Federico Boffa & Viswanath Pingali & Davide Vannoni, 2009. "Increasing Market Interconnection: An analysis of the Italian Electricity Spot Market," Working papers 04, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    • Handle: RePEc:tur:wpaper:04
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    Cited by:

    1. Boffa, Federico & Pingali, Viswanath & Sala, Francesca, 2015. "Strategic investment in merchant transmission: The impact of capacity utilization rules," Energy Policy, Elsevier, vol. 85(C), pages 455-463.
    2. Sapio, Alessandro & Spagnolo, Nicola, 2020. "The effect of a new power cable on energy prices volatility spillovers," Energy Policy, Elsevier, vol. 144(C).
    3. Alexander Zerrahn & Daniel Huppmann, 2014. "Network Expansion to Mitigate Market Power: How Increased Integration Fosters Welfare," Discussion Papers of DIW Berlin 1380, DIW Berlin, German Institute for Economic Research.
    4. Simona Bigerna & Carlo Andrea Bollino & Maria Chiara D’Errico & Paolo Polinori, 2023. "A new design for market power monitoring in the electricity market. A simulation for Italy," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(1), pages 285-317, April.
    5. Bigerna, Simona & Bollino, Carlo Andrea & D'Errico, Maria Chiara & Polinori, Paolo, 2017. "The Ideal Competitive Electricity Market. A simulation for Italy," MPRA Paper 94893, University Library of Munich, Germany.
    6. Fianu, Emmanuel Senyo & Ahelegbey, Daniel Felix & Grossi, Luigi, 2022. "Modeling risk contagion in the Italian zonal electricity market," European Journal of Operational Research, Elsevier, vol. 298(2), pages 656-679.
    7. G. Papaioannou & P. Papaioannou & N. Parliaris, 2014. "Modeling the stylized facts of wholesale system marginal price (SMP) and the impacts of regulatory reforms on the Greek Electricity Market," Papers 1401.5452, arXiv.org.
    8. Newbery, David & Pollitt, Michael G. & Ritz, Robert A. & Strielkowski, Wadim, 2018. "Market design for a high-renewables European electricity system," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 695-707.
    9. Petrella, Andrea & Sapio, Alessandro, 2012. "Assessing the impact of forward trading, retail liberalization, and white certificates on the Italian wholesale electricity prices," Energy Policy, Elsevier, vol. 40(C), pages 307-317.
    10. Bosco, Bruno & Parisio, Lucia & Pelagatti, Matteo, 2012. "Strategic bidding in vertically integrated power markets with an application to the Italian electricity auctions," Energy Economics, Elsevier, vol. 34(6), pages 2046-2057.
    11. De Siano, Rita & Sapio, Alessandro, 2022. "Spatial merit order effects of renewables in the Italian power exchange," Energy Economics, Elsevier, vol. 108(C).
    12. Zimmermann, Florian & Bublitz, Andreas & Keles, Dogan & Fichtner, Wolf, 2019. "Cross-border effects of capacity remuneration mechanisms: The Swiss case," Working Paper Series in Production and Energy 35, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    13. Dagoumas, Athanasios S. & Koltsaklis, Nikolasos E. & Panapakidis, Ioannis P., 2017. "An integrated model for risk management in electricity trade," Energy, Elsevier, vol. 124(C), pages 350-363.
    14. Bigerna, Simona & Andrea Bollino, Carlo & Polinori, Paolo, 2015. "Marginal cost and congestion in the Italian electricity market: An indirect estimation approach," Energy Policy, Elsevier, vol. 85(C), pages 445-454.
    15. Andrea Petrella & Sandro Sapio, 2010. "No PUN intended: A time series analysis of the Italian day-ahead electricity prices," RSCAS Working Papers 2010/03, European University Institute.
    16. Sapio, Alessandro, 2019. "Greener, more integrated, and less volatile? A quantile regression analysis of Italian wholesale electricity prices," Energy Policy, Elsevier, vol. 126(C), pages 452-469.
    17. Alexander Zerrahn & Daniel Huppmann, 2017. "Network Expansion to Mitigate Market Power," Networks and Spatial Economics, Springer, vol. 17(2), pages 611-644, June.
    18. Simona Bigerna, Carlo Andrea Bollino and Paolo Polinori, 2016. "Market Power and Transmission Congestion in the Italian Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    19. Ringler, Philipp & Keles, Dogan & Fichtner, Wolf, 2017. "How to benefit from a common European electricity market design," Energy Policy, Elsevier, vol. 101(C), pages 629-643.
    20. Maria Chiara D?Errico, 2020. "Competition in the Italian electricity market: The unforeseen social welfare losses of reform," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2020(2), pages 75-91.
    21. Michele Fiorelli & Dogan Keles & Francesco Montana & Giovanni Lorenzo Restifo & Eleonora Riva Sanseverino & Gaetano Zizzo, 2020. "Evaluation of the Administrative Phase-Out of Coal Power Plants on the Italian Electricity Market," Energies, MDPI, vol. 13(18), pages 1-24, September.
    22. Schill, Wolf-Peter & Egerer, Jonas & Rosellón, Juan, 2015. "Testing Regulatory Regimes for Power Transmission Expansion with Fluctuating Demand and Wind Generation," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 47(1), pages 1-28.

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    More about this item

    Keywords

    Transmission constraints; zonal pricing; congestion; electricity industry;
    All these keywords.

    JEL classification:

    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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