Cross-border effects in interconnected electricity markets - an analysis of the Swiss electricity prices

Abstract

Electricity markets in Europe become increasingly interconnected due to new grid connections and market coupling regulations. This paper examines the interdependencies between the Swiss electricity market and those of neighbouring countries. The Swiss market serves as a good example for a smaller electricity market which is increasingly affected by developments in the large neighbouring countries. To study these cross-border effects, especially those on Swiss electricity prices, we apply two different methodologies, an econometric and a Nash-Cournot equilibrium model. The analyses show that the Swiss electricity price correlates strongly with the German electricity price in the summer, but tends to follow the French electricity price in the winter. Another finding is that gas prices and the electricity load of neighbouring countries have a significant influence on prices. In particular, the load of France and Italy is driving up Swiss prices in the winter, while the German electricity demand and renewable energy generation have a larger influence on Swiss prices in the summer.