Multinational electricity market integration and electricity price dynamics

Abstract

The paper empirically explores the electricity price dynamics in the Nordic power market, Nord Pool, during the years 1996-2006. Empirically the study reveals that the conditional mean electricity price increased when Finland joined, and remained at the higher level when Denmark also joined. Turning to the price volatility, this increased when Finland joined, but decreased when Denmark also joined. However, the price jump-intensity decreased both when Finland and Denmark joined the market. This means that a larger electricity market seems to reduce the probability of sudden price jumps. That is, the multinational electricity market integration seems to have created a market that handles external shocks to supply and demand more efficient than the separate national electricity markets previously did.