Market Integration, Efficiency, and Interconnectors: The Irish Single Electricity Market

Abstract:     
Interconnections can be an effective way to increase competition and improve market integration in concentrated wholesale electricity markets with limited participants. This paper examines the potentials for interconnections and increasing market integration in the Irish Single Electricity Market (SEM). We use a time-varying Kalman filter technique to assess the degree of market integration between SEM and other large, mature and interconnected wholesale electricity markets in Europe including Great Britain (GB). The results indicate no market integration between SEM and other European markets except for Elspot and GB. We show that the current state of market integration between SEM and GB is just 17% indicating potentials to improve market integration via increased interconnections. The results indicate that liquidity of wholesale markets might be a crucial factor in the market integration process while our results remain inconclusive in determining whether increased trade of renewable can help in market integration.

Number of Pages in PDF File: 32

Keywords: interconnection, wholesale markets, market integration, competition

JEL Classification: L94, C22, D02, G1

working papers series