Demand elasticity increase for reducing social welfare losses due to transfer capacity restriction: A test case on Italian cross-border imports

Abstract

The paper is aimed at showing how demand-side policies for increasing inner demand elasticity could help in reducing market inefficiencies generated by transfer limits on interconnections, with a special regard to energy imports dependent countries. In order to develop the studies in a realistic environment, a model for the Italian electricity market has been developed. Test results show effects of variations in demand elasticity on the national social surplus and congestion costs. It will be shown how an increase of demand elasticity can counterbalance the need of additional transfer capacity in reducing cross-border congestions.