Integrating regional electricity markets towards a single European market

Abstract

The Electricity directives provided a general framework for the integration of electricity markets but unclear on the means to achieve full integration. Regional Initiatives were thought as a bottom up approach aiming to speed up the integration of electricity markets in Europe by complementing the top down approach of the three Directives. They were successful in creating regional submarkets using market coupling or splitting. This paper investigates differences between European electricity submarkets and assesses the level of integration within and between them. We find four regions with high degree of correlation between electricity prices: CWE, CEE, NordPool or the MIBEL. Moreover, there are now signs of convergence between regions too. Regional interconnections can be the key to a successful integration of markets.