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Evaluation of a cross-border electricity interconnection: The case of Spain-France

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  • Abadie, Luis María
  • Chamorro, José Manuel

Abstract

This paper focuses on the economics of a cross-border transmission interconnector. The domestic spot electricity price is modelled as a stochastic process with mean reversion and jumps; it also includes a deterministic part that accounts for hourly and daily sasonalities along with non-working days. The two domestic spot prices are assumed to be correlated. As an illustration of the approach, we consider the particular case of the interconnector between Spain (an ‘electric island’) and France. Domestic prices are first calibrated and then used for simulating the stochastic behavior of the price gap between the two countries. In addition, the actual import/export behavior as a function of the price gap is captured by a Tobit model fitted from observed data. This model is then combined with the simulated price gaps to compute a multiple series of hourly prices and exports/imports of electricity through the interconnector. Drawing on these simulations we derive the probability distributions of revenues and expenses from exports and imports, and also some risk measures. According to our results, the economics of this interconector depends on different domestic seasonalities (hourly and daily), the growing trend of the price gap and some stochastic idiosyncrasies. They call for an expanded link.

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  • Abadie, Luis María & Chamorro, José Manuel, 2021. "Evaluation of a cross-border electricity interconnection: The case of Spain-France," Energy, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:energy:v:233:y:2021:i:c:s0360544221014250
    DOI: 10.1016/j.energy.2021.121177
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    More about this item

    Keywords

    Interconnector appraisal; Electricity prices; Stochastic models; Jumps; Tobit model;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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