Measuring the impact of market coupling on the Italian electricity market using ELFO++

This paper evaluates the impact on the Italian electricity market of replacing the current explicit auction mechanism with market coupling. Maximizing the use of the cross-border interconnection capacity, market coupling increases the level of market integration and facilitates the access to low-cost generation by consumers located in high-cost generation countries. Thus, it is expected that a high-priced area such as Italy could greatly benefit from the introduction of this mechanism. In this paper, the welfare benefits are estimated under alternative market scenarios for 2012, employing the optimal dispatch model ELFO++. The results of the simulations suggest that the improvement in social surplus is likely to be significant, especially when market fundamentals are tight.Market coupling; market integration; Italian day-ahead electricity market.

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

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.Transmission constraints, zonal pricing, congestion, electricity industry

Deregulated Wholesale Electricity Prices in Italy.

In this paper we analyze the time series of daily average prices generated in the Italian electricity market, which started to operate as a Pool in April 2004. The objective is to characterize the high degree of autocorrelation and multiple seasonalities in the electricity prices. We use periodic time series models with GARCH disturbances and leptokurtic distributions and compare their performance with more classical ARMA-GARCH processes. The within-year seasonal variation is modelled using the low frequencies components of physical quantities, which are very regular throughout the sample. Results reveal that much of the variability of the price series is explained by deterministic multiple seasonalities which interact with each other. Periodic AR-GARCH models seem to perform quite well in mimicking the features of the stochastic part of the price process.Electricity auctions, Periodic Time Series, Conditional Heteroskedasticity, Multiple Seasonalities

Forecasting Italian Electricity Zonal Prices with Exogenous Variables

In the last few years we have observed deregulation in electricity markets and an increasing interest of price dynamics has been developed especially to consider all stylized facts shown by spot prices. Only few papers have considered the Italian Electricity Spot market since it has been deregulated recently. Therefore, this contribution is an investigation with emphasis on price dynamics accounting for technologies, market concentration and congestions. We aim to understand how technologies, concentration and congestions affect the zonal prices since these ones combine to bring about the single national price (prezzo unico d’acquisto, PUN). Hence, understanding its features is important for drawing policy indications referred to production planning and selection of generation sources, pricing and risk–hedging problems, monitoring of market power positions and finally to motivate investment strategies in new power plants and grid interconnections. Implementing Reg–ARFIMA–GARCH models, we assess the forecasting performance of selected models showing that they perform better when these factors are considered.Electricity prices, Production technologies, Market power (HHI, RSI), Congestions, Fractional Integration, Forecasting

MIncreasing Market Interconnection: an analysis of the Italian Electricity Spot Market

We estimate the bene ts resulting from completely 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 for May 2004, we predict that the total spot market expenditure reduces substantially by almost four percent. Our analysis finds evidence that the (partly State owned) major firm in the market does not currently maximize its short-term profit, and would benefit as well from improved interconnection.Transmission constraints,self-regulated monopoly,zonal pricing,congestion

The single European electricity market: A long road to convergence

In the context of a first Working Paper the authors argued that electricity has a number of characteristics that set it apart from other commodities. It was demonstrated that some of these characteristics might complicate the deregulation process. This paper analyses the ongoing deregulation process in the European electricity sector and attempts to establish whether these difficulties can more readily be solved at European level. It would appear that some problems, e.g. economies of scale in electricity generation, have less of an impact at European level than within smaller national markets. However, a number of difficulties have to be overcome before a unified European electricity market can become a reality. These include the limited interconnection capacities between Member States. The European Commission has taken steps to improve the situation, for example by offering financial support for investments and promoting the development of regional markets as an interim measure ultimately leading to a fully integrated market. Apart from the difficulties related to electricity generation and transmission there are also exogenous factors that influence the ongoing deregulation process, e.g. the implementation of the Kyoto protocol and the dramatic increases in primary fuel prices. This paper argues that a consistent, stable and uniform European regulatory framework must be put in place if the impact of these difficulties is to be minimised.Electricity deregulation

Nordic Electricity Congestion's Arrangement as a Model for Europe: Physical Constraints or Operators' Opportunity

Nordic Electricity Congestion's Arrangement as a Model for Europe: Physical Constraints or Operators' Opportunit

The transition towards a sustainable energy system in Europe: What role can North Africa's solar resources play?

Securing energy supply and speeding up the transition towards a reliable, sustainable, low-carbon energy system are among the major current and future challenges facing Europe. Importing dispatchable solar electricity from North Africa is considered as a potential and attractive option. Nevertheless, as things currently stand, the European Commission focuses mainly on the exploitation of the existing wind power potential in the North Sea, largely ignoring the solar power potential in the Sahara region of North Africa. After discussing the major challenges and issues facing Europe to achieve the assigned ambitious objectives, the paper emphasises the importance of North Africa's solar resources in helping Europe to successfully address the challenge of decarbonising its electricity system, in particular with regards to the security of supply and sustainability. Within these two major challenges, the paper explores the issues of access, barriers and opportunities. The paper highlights why the EU’s energy and climate goals will not be achievable without adequate grid expansion and grid-scale energy storage facilities, as well as other innovative measures to manage demand and ensure a secure energy supply. In this respect, the paper shows how the import of dispatchable electricity from North Africa via specific HVDC links could play a key role in helping the EU achieve its energy targets in a cost effective way without recourse to significant investments in transmission infrastructure and storage facilities. The paper then attempts to identify and analyze the main barriers that continue to inhibit the export of solar electricity from North Africa to Europe. Finally, to make the project more attractive and achievable in the near future, the paper proposes a systematic approach for setting up energy import scenarios. A promising import scenario is presented where energy import via Italy is shown to be a more viable and effective solution than via Spain.Peer reviewe

Market coupling and the organization of counter-trading: separating energy and transmission again?

The horizontal integration of the energy market and the organization of transmission services remain two open issues in the restructured European electricity sector. The coupling of the French, Belgian and Dutch electricity markets (the trilateral market) in November 2006 was a real success that the inclusion of Germany to the trilateral market should soon prolong. But the extension of market coupling whether in Central Western Europe or in other European regions encounters several difficulties and the future remains far from clear. The highly meshed grid of continental Europe complicates things and it is now sometimes recognized that the penetration of wind will further exacerbate these difficulties. The nodal system could go a long way towards solving these problems, but its implementation is not yet foreseen in the EU. This paper analyzes versions of market coupling that differ by the organization of counter- trading. While underplayed in current discussions, counter-trading will become a key element of market coupling as its geographic coverage expands and wind penetration develops. We consider a stylized six node example found in the literature and simulate market coupling for different assumptions of zonal decomposition and coordination of TSOs. We show that these assumptions matter: market coupling can be quite vulnerable to the particular situation on hand; counter-trading can work well or completely fail depending on the case and it is not clear beforehand what will prevail. Our analysis relies on standard economic notions such as social welfare, Nash and Generalized Nash equilibrium. But the use of these notions is probably novel. We also simplify matters by assuming away strategic behaviour. The nodal organization is the reference first best scenario: different zonal decompositions and degrees of coordinations are then studied with respect to this first best solution.D52, D58, Q40

Estimating Marginal Costs and Market Power in the Italian Electricity Auctions

In this paper we examine the bidding behaviour of firm competing in the Italian wholesale electricity market where generators submit hourly supply schedule to sell power. We describe the institutional characteristics of the Italian market and derive generators' equilibrium bidding functions. We also discuss the main empirical strategies followed by the recent econometrical literature to obtain estimates of (unobservable) optimal bids. Then, we use individual bid data, quantity volumes and other control variables to compare actual bidding behaviour to theoretical benchmarks of profit maximization. We obtain estimates of generators' costs to be used in conjunction with hourly market equilibrium prices to derive some measures of the extent of market power in the Italian electricity sector and of its exploitation by firms.Bidding behaviour in Electricity markets, Estimates of optimal bid functions, Measures of market power