The European Internal Energy Market’s Worth to the UK

TSE Working Paper No. 1052

47 Pages Posted: 13 Dec 2019

See all articles by Farid Gasmi

Farid Gasmi

University of Toulouse 1 - Toulouse School of Economics (TSE)

Philip Hanspach

European University Institute, Department of Economics

Date Written: November 1, 2019

Abstract

This article proposes a two-country model of electricity trade under peak-load pricing. We apply the model to France and the UK to assess the benefit to the UK of trade within the European internal energy market (IEM). Calibration and simulations of the model aimed at simulating bilateral trade in the market coupling process at electricity exchanges show the following. First, the occurrence of gains from trade for both countries is highly dependent on whether imported electricity affects the price in the local market and whether imports alleviate scarcity. Second, the main effect of importing electricity is a shift in welfare from domestic producers to domestic consumers of the importing country. Finally, the UK’s membership in the IEM generates additional welfare for the UK of up to 900 M€ per year across a range of scenarios in which the number of on-peak periods are exogenously varied in a conservative way relative to the actual data.

Keywords: Electricity, Market Coupling, Brexit, Calibration, Simulation

JEL Classification: F15, L94

Suggested Citation

Gasmi, Farid and Hanspach, Philip, The European Internal Energy Market’s Worth to the UK (November 1, 2019). TSE Working Paper No. 1052, Available at SSRN: https://ssrn.com/abstract=3493190 or http://dx.doi.org/10.2139/ssrn.3493190

Farid Gasmi (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Philip Hanspach

European University Institute, Department of Economics ( email )

Florence
Italy

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