IDEAS home Printed from https://ideas.repec.org/p/tur/wpaper/04.html
   My bibliography  Save this paper

Increasing Market Interconnection: An analysis of the Italian Electricity Spot Market

Author

Listed:
  • Federico Boffa

    (Department of Legal and Economic Studies, University of Macerata)

  • Viswanath Pingali

    (Senior Manager, Dr. Reddy’s Laboratories, Hyderabad, India)

  • Davide Vannoni

    (Department of Economics and Public Finance "G. Prato", University of Torino)

Abstract

In this paper we estimate the benefits resulting from interconnecting the Italian electricity spot market. The market is currently divided into two geographic zones - North and South - with limited interzonal transmission capacity that often induces congestion, and hence potential inefficiency. By simulating a fully interconnected market, we predict that the total spot market expenditure would reduce substantially. Moreover, since savings do not increase linearly with the size of new transmission capacity, even a slight increment to transmission capacity is found to bring substantial benefits to end users. Finally, our analysis shows that the (partly State owned) dominant firm in the market is not maximizing short-term profits.

Suggested Citation

  • Federico Boffa & Viswanath Pingali & Davide Vannoni, 2009. "Increasing Market Interconnection: An analysis of the Italian Electricity Spot Market," Working papers 04, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    • Handle: RePEc:tur:wpaper:04
    as

    Download full text from publisher

    File URL: http://www.bemservizi.unito.it/repec/tur/wpaper/n4.pdf
    File Function: First version, 2009
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ross Baldick & William Hogan, 2006. "Stability of supply function equilibria implications for daily versus hourly bids in a poolco market," Journal of Regulatory Economics, Springer, vol. 30(2), pages 119-139, August.
    2. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets," American Economic Review, American Economic Association, vol. 98(1), pages 237-266, March.
    3. Paul Joskow & Jean Tirole, 2005. "Merchant Transmission Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 233-264, June.
    4. Frank Wolak, 2000. "An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market," International Economic Journal, Taylor & Francis Journals, vol. 14(2), pages 1-39.
    5. Dewatripont,Mathias & Hansen,Lars Peter & Turnovsky,Stephen J. (ed.), 2003. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521818728, January.
    6. Severin Borenstein & James Bushnell, 1999. "An Empirical Analysis of the Potential for Market Power in California’s Electricity Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 285-323, September.
    7. Dewatripont,Mathias & Hansen,Lars Peter & Turnovsky,Stephen J. (ed.), 2003. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521524131, January.
    8. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
    9. Harvey, Scott M. & Hogan, William W. & Pope, Susan L., 1996. "Transmission capacity reservations implemented through a spot market with transmission congestion contracts," The Electricity Journal, Elsevier, vol. 9(9), pages 42-55, November.
    10. Bolle, Friedel, 1992. "Supply function equilibria and the danger of tacit collusion : The case of spot markets for electricity," Energy Economics, Elsevier, vol. 14(2), pages 94-102, April.
    11. Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi‐unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114, March.
    12. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
    13. Dewatripont,Mathias & Hansen,Lars Peter & Turnovsky,Stephen J. (ed.), 2003. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521818742, January.
    14. Dewatripont,Mathias & Hansen,Lars Peter & Turnovsky,Stephen J. (ed.), 2003. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521524117, January.
    15. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
    16. Borenstein, Severin & Bushnell, James & Kahn, Edward & Stoft, Steven, 1995. "Market power in California electricity markets," Utilities Policy, Elsevier, vol. 5(3-4), pages 219-236.
    17. Rajnish Kamat & Shmuel Oren, 2004. "Two-settlement Systems for Electricity Markets under Network Uncertainty and Market Power," Journal of Regulatory Economics, Springer, vol. 25(1), pages 5-37, January.
    18. Andrew Sweeting, 2007. "Market Power In The England And Wales Wholesale Electricity Market 1995-2000," Economic Journal, Royal Economic Society, vol. 117(520), pages 654-685, April.
    19. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
    20. Dewatripont,Mathias & Hansen,Lars Peter & Turnovsky,Stephen J. (ed.), 2003. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521818735, January.
    21. Dewatripont,Mathias & Hansen,Lars Peter & Turnovsky,Stephen J. (ed.), 2003. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521524124, January.
    22. Mathias Dewatripont & Lars Peter Hansen & Stephen Turnovsky, 2003. "Advances in economics and econometrics :theory and applications," ULB Institutional Repository 2013/9557, ULB -- Universite Libre de Bruxelles.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Boffa, Federico & Pingali, Viswanath & Sala, Francesca, 2015. "Strategic investment in merchant transmission: The impact of capacity utilization rules," Energy Policy, Elsevier, vol. 85(C), pages 455-463.
    2. Sapio, Alessandro & Spagnolo, Nicola, 2020. "The effect of a new power cable on energy prices volatility spillovers," Energy Policy, Elsevier, vol. 144(C).
    3. Alexander Zerrahn & Daniel Huppmann, 2014. "Network Expansion to Mitigate Market Power: How Increased Integration Fosters Welfare," Discussion Papers of DIW Berlin 1380, DIW Berlin, German Institute for Economic Research.
    4. Simona Bigerna & Carlo Andrea Bollino & Maria Chiara D’Errico & Paolo Polinori, 2023. "A new design for market power monitoring in the electricity market. A simulation for Italy," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(1), pages 285-317, April.
    5. Bigerna, Simona & Bollino, Carlo Andrea & D'Errico, Maria Chiara & Polinori, Paolo, 2017. "The Ideal Competitive Electricity Market. A simulation for Italy," MPRA Paper 94893, University Library of Munich, Germany.
    6. Fianu, Emmanuel Senyo & Ahelegbey, Daniel Felix & Grossi, Luigi, 2022. "Modeling risk contagion in the Italian zonal electricity market," European Journal of Operational Research, Elsevier, vol. 298(2), pages 656-679.
    7. G. Papaioannou & P. Papaioannou & N. Parliaris, 2014. "Modeling the stylized facts of wholesale system marginal price (SMP) and the impacts of regulatory reforms on the Greek Electricity Market," Papers 1401.5452, arXiv.org.
    8. Newbery, David & Pollitt, Michael G. & Ritz, Robert A. & Strielkowski, Wadim, 2018. "Market design for a high-renewables European electricity system," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 695-707.
    9. Petrella, Andrea & Sapio, Alessandro, 2012. "Assessing the impact of forward trading, retail liberalization, and white certificates on the Italian wholesale electricity prices," Energy Policy, Elsevier, vol. 40(C), pages 307-317.
    10. Bosco, Bruno & Parisio, Lucia & Pelagatti, Matteo, 2012. "Strategic bidding in vertically integrated power markets with an application to the Italian electricity auctions," Energy Economics, Elsevier, vol. 34(6), pages 2046-2057.
    11. De Siano, Rita & Sapio, Alessandro, 2022. "Spatial merit order effects of renewables in the Italian power exchange," Energy Economics, Elsevier, vol. 108(C).
    12. Zimmermann, Florian & Bublitz, Andreas & Keles, Dogan & Fichtner, Wolf, 2019. "Cross-border effects of capacity remuneration mechanisms: The Swiss case," Working Paper Series in Production and Energy 35, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    13. Dagoumas, Athanasios S. & Koltsaklis, Nikolasos E. & Panapakidis, Ioannis P., 2017. "An integrated model for risk management in electricity trade," Energy, Elsevier, vol. 124(C), pages 350-363.
    14. Bigerna, Simona & Andrea Bollino, Carlo & Polinori, Paolo, 2015. "Marginal cost and congestion in the Italian electricity market: An indirect estimation approach," Energy Policy, Elsevier, vol. 85(C), pages 445-454.
    15. Andrea Petrella & Sandro Sapio, 2010. "No PUN intended: A time series analysis of the Italian day-ahead electricity prices," RSCAS Working Papers 2010/03, European University Institute.
    16. Sapio, Alessandro, 2019. "Greener, more integrated, and less volatile? A quantile regression analysis of Italian wholesale electricity prices," Energy Policy, Elsevier, vol. 126(C), pages 452-469.
    17. Alexander Zerrahn & Daniel Huppmann, 2017. "Network Expansion to Mitigate Market Power," Networks and Spatial Economics, Springer, vol. 17(2), pages 611-644, June.
    18. Simona Bigerna, Carlo Andrea Bollino and Paolo Polinori, 2016. "Market Power and Transmission Congestion in the Italian Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    19. Ringler, Philipp & Keles, Dogan & Fichtner, Wolf, 2017. "How to benefit from a common European electricity market design," Energy Policy, Elsevier, vol. 101(C), pages 629-643.
    20. Maria Chiara D?Errico, 2020. "Competition in the Italian electricity market: The unforeseen social welfare losses of reform," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2020(2), pages 75-91.
    21. Michele Fiorelli & Dogan Keles & Francesco Montana & Giovanni Lorenzo Restifo & Eleonora Riva Sanseverino & Gaetano Zizzo, 2020. "Evaluation of the Administrative Phase-Out of Coal Power Plants on the Italian Electricity Market," Energies, MDPI, vol. 13(18), pages 1-24, September.
    22. Schill, Wolf-Peter & Egerer, Jonas & Rosellón, Juan, 2015. "Testing Regulatory Regimes for Power Transmission Expansion with Fluctuating Demand and Wind Generation," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 47(1), pages 1-28.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:tur:wpaper:4 is not listed on IDEAS
    2. Jorge Balat & Juan E. Carranza & Juan D. Martin, 2015. "Dynamic and Strategic Behavior in Hydropower-Dominated Electricity Markets: Empirical Evidence for Colombia," Borradores de Economia 886, Banco de la Republica de Colombia.
    3. Bigerna, Simona & Bollino, Carlo Andrea & D'Errico, Maria Chiara & Polinori, Paolo, 2015. "Competitive equilibrium in the italian wholesale electricity market," MPRA Paper 68310, University Library of Munich, Germany.
    4. Bosco, Bruno & Parisio, Lucia & Pelagatti, Matteo, 2012. "Strategic bidding in vertically integrated power markets with an application to the Italian electricity auctions," Energy Economics, Elsevier, vol. 34(6), pages 2046-2057.
    5. Joseph Mullins & Liam Wagner & John Foster, 2010. "Price Spikes in Electricity Markets: A Strategic Perspective," Energy Economics and Management Group Working Papers 05, School of Economics, University of Queensland, Australia.
    6. Brown, David P. & Eckert, Andrew & Silveira, Douglas, 2023. "Screening for collusion in wholesale electricity markets: A literature review," Utilities Policy, Elsevier, vol. 85(C).
    7. Wolak, Frank A., 2015. "Measuring the competitiveness benefits of a transmission investment policy: The case of the Alberta electricity market," Energy Policy, Elsevier, vol. 85(C), pages 426-444.
    8. Carlos Suarez, 2021. "Mixed Oligopoly and Market Power Mitigation: Evidence from the Colombian Wholesale Electricity Market," IREA Working Papers 202101, University of Barcelona, Research Institute of Applied Economics, revised Jan 2021.
    9. Ali Hortacsu & Steven L. Puller, 2005. "Understanding Strategic Bidding in Restructured Electricity Markets: A Case Study of ERCOT," NBER Working Papers 11123, National Bureau of Economic Research, Inc.
    10. John Geanakoplos & Robert Axtell & J. Doyne Farmer & Peter Howitt & Benjamin Conlee & Jonathan Goldstein & Matthew Hendrey & Nathan M. Palmer & Chun-Yi Yang, 2012. "Getting at Systemic Risk via an Agent-Based Model of the Housing Market," American Economic Review, American Economic Association, vol. 102(3), pages 53-58, May.
    11. Christian Hellwig, 2004. "Heterogeneous Information and the Benefits of Public Information Disclosures (October 2005)," UCLA Economics Online Papers 283, UCLA Department of Economics.
    12. Gärtner, D.L. & Zhou, J., 2012. "Delays in Leniency Application : Is There Really a Race to the Enforcer’s Door?," Other publications TiSEM cbb8fac0-0cd7-4a0c-a6d4-a, Tilburg University, School of Economics and Management.
    13. Ennis, Huberto M. & Keister, Todd, 2005. "Government policy and the probability of coordination failures," European Economic Review, Elsevier, vol. 49(4), pages 939-973, May.
    14. Christoph Breunig, 2019. "Goodness-of-Fit Tests based on Series Estimators in Nonparametric Instrumental Regression," Papers 1909.10133, arXiv.org.
    15. , & ,, 2013. "Selection-free predictions in global games with endogenous information and multiple equilibria," Theoretical Economics, Econometric Society, vol. 8(3), September.
    16. Karp, Larry S., 2008. "Correct (and misleading) argument for using market-based pollution control policies," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6030, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    17. Buccirossi, Paolo & Spagnolo, Giancarlo, 2006. "Leniency policies and illegal transactions," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1281-1297, August.
    18. S. Boragan Aruoba & Francis X. Diebold, 2010. "Real-Time Macroeconomic Monitoring: Real Activity, Inflation, and Interactions," American Economic Review, American Economic Association, vol. 100(2), pages 20-24, May.
    19. König, Philipp & Anand, Kartik & Heinemann, Frank, 2013. "The ‘Celtic Crisis’: Guarantees, transparency, and systemic liquidity risk," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79747, Verein für Socialpolitik / German Economic Association.
    20. Yoo, Seung Han, 2014. "Learning a population distribution," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 188-201.
    21. Rungcharoenkitkul, Phurichai, 2005. "Coordination failure cycle," MPRA Paper 37970, University Library of Munich, Germany, revised Mar 2012.

    More about this item

    Keywords

    Transmission constraints; zonal pricing; congestion; electricity industry;
    All these keywords.

    JEL classification:

    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tur:wpaper:04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Daniele Pennesi (email available below). General contact details of provider: https://edirc.repec.org/data/dstorit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.