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Characterizing electricity market integration in Nord Pool

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  • Uribe, Jorge M.
  • Mosquera-López, Stephanía
  • Guillen, Montserrat

Abstract

We empirically study market integration and the propagation of shocks in the interconnected market of Nord Pool. We document an increasing trend towards market integration over recent decades in Nord Pool and identify clear cycles accounting for greater integration (larger transmission of shocks) in the cold seasons. Greater market integration permits a higher level of risk sharing between electricity markets and, as a result, can be expected to reduce the probability of energy crises and energy shortages occurring in any given market. Furthermore, we differentiate between shock propagation in the two tails of the price variation distribution and, so, distinguish downside risk from upside risk spillovers. Market spillovers following price increments are transmitted to a greater degree than are those following price reductions in the market. We also document asymmetries related both to the size of the transaction area and as to whether a given area behaves as a net-exporter or net-importer of electricity. For instance, we show that the larger the transaction area, the smaller are the volatility shocks on prices that it receives from the rest of the system.

Suggested Citation

  • Uribe, Jorge M. & Mosquera-López, Stephanía & Guillen, Montserrat, 2020. "Characterizing electricity market integration in Nord Pool," Energy, Elsevier, vol. 208(C).
    • Handle: RePEc:eee:energy:v:208:y:2020:i:c:s0360544220314754
    DOI: 10.1016/j.energy.2020.118368
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    Cited by:

    1. Lyu, Chenyan & Do, Hung Xuan & Nepal, Rabindra & Jamasb, Tooraj, 2023. "Volatility Spillovers and Carbon Price in the Nordic Wholesale Electricity Markets," Working Papers 5-2023, Copenhagen Business School, Department of Economics.
    2. Abdullah, Mohammad & Abakah, Emmanuel Joel Aikins & Wali Ullah, G M & Tiwari, Aviral Kumar & Khan, Isma, 2023. "Tail risk contagion across electricity markets in crisis periods," Energy Economics, Elsevier, vol. 127(PB).
    3. Ma, Rufei & Liu, Zhenhua & Zhai, Pengxiang, 2022. "Does economic policy uncertainty drive volatility spillovers in electricity markets: Time and frequency evidence," Energy Economics, Elsevier, vol. 107(C).
    4. Grohnheit, Poul Erik & Sneum, Daniel Møller, 2023. "Calm before the storm: Market prices in a power market with an increasing share of wind power," Energy Policy, Elsevier, vol. 179(C).
    5. Sikorska-Pastuszka, Magdalena & Papież, Monika, 2023. "Dynamic volatility connectedness in the European electricity market," Energy Economics, Elsevier, vol. 127(PA).
    6. Li, Wei & Becker, Denis Mike, 2021. "Day-ahead electricity price prediction applying hybrid models of LSTM-based deep learning methods and feature selection algorithms under consideration of market coupling," Energy, Elsevier, vol. 237(C).

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