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Impact of bidding zone re-configurations on electricity prices: Evidence from Sweden

Author

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  • Loiacono, Luisa
  • Rizzo, Leonzio
  • Stagnaro, Carlo

Abstract

In the European Union's electricity wholesale markets, energy is traded across large bidding zones, which, in most cases coincide with national borders: the so-called zonal markets. Within each market zone, energy flows are supposed to be free of transmission constraints. However, in some cases transmission constraints exist, implying an inefficient mismatch between demand and supply in different areas where the zonal market holds. Does transition to a more homogeneous multi-zonal market change equilibrium prices by facilitating a better balance between demand and supply when transmission constraints hold? We answer this question, by testing if the market re-configuration from one bidding zone to four zones, together with the commitment to not limit export with the neighboring countries, which took place in Sweden in November 2011, implied a change in prices. We perform a Regression Discontinuity in Time (RDiT) to compare change in prices in the four zones of Sweden. We find that, after November 2011, electricity prices increase across all zones with a stronger effect in southern Sweden.

Suggested Citation

  • Loiacono, Luisa & Rizzo, Leonzio & Stagnaro, Carlo, 2025. "Impact of bidding zone re-configurations on electricity prices: Evidence from Sweden," Energy Economics, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324008156
    DOI: 10.1016/j.eneco.2024.108106
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    Keywords

    Electricity market; Bidding zone; Wholesale market price; Zonal market; Transmission constraint;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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