Abstract
In the past, energy networks (grids) were nationally organized. The grids were linked by interconnectors. The capacities of the interconnectors were limited and only used to counter an imbalance in one of the grids. Governments fixed the prices and there was no energy price risk. Liberalization of the market introduced prices that fluctuate every moment; with the liberalization, energy price risk was introduced. The more volatile the energy prices, the larger the risk for market participants. Market coupling links the former nationally organized markets, which may cause a reduction in the volatility of the energy prices. At first the TSOs (Transmission System Operators) sold connector capacity by so called explicit auction, separate from the electricity auction. With the mechanism of explicit auction it was relatively easy to realize a market based allocation of scarce limited interconnector capacity on adjacent borders. Explicit auctions however do not realize the optimal result. In due time, they are replaced by so-called implicit auctions where the interconnectors’ capacities are automatically allocated in such a way that electricity price differences between countries are minimized. This implicit mechanism is also referred to as market coupling. In this chapter the effect of market coupling on market prices is investigated in the observed period, 1 January 2005–31 March 2011, for Scandinavia (South), The Netherlands, Belgium and France. It is found that due to market coupling the price differences between the markets diminish.
Published Version
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