Increasing market interconnection: An analysis of the Italian electricity spot market

• Published in: International journal of industrial organization Vol. 28; no. 3; pp. 311 - 322
• Main Authors: Boffa, Federico, Pingali, Viswanath, Vannoni, Davide
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.05.2010; Elsevier; Elsevier Sequoia S.A
• Series: International Journal of Industrial Organization
• Subjects: Congestion; Electricity; Electricity industry; End users; Energy market; Expenditure; Geographic mobility; Italy; Market efficiency; Market structure; Power marketers; Profit maximization; Simulation; Studies; Transmission constraints; Transmission constraints Zonal pricing Congestion Electricity industry; Zonal pricing; Italy; Transmission constraints; L50; L94; Zonal pricing; H44; L21; Congestion; Electricity industry; L22
• ISSN: 0167-7187; 1873-7986
• DOI: 10.1016/j.ijindorg.2009.10.003

We estimate the benefits (in terms of savings to end-users) resulting from an improved interconnectivity in the Italian electricity spot market. The market is currently divided into two geographic zones – North and South – with limited inter-zonal 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 substantially reduce end-users' expenditures. Finally, our analysis shows that the (partly State owned) dominant firm in the market is not maximizing short-term profits.