Cross-Border Technology Differences and Trade Barriers: Evidence from German and French Electricity Markets

Klaus Gugler, Adhurim Haxhimusa

Publication: Working/Discussion PaperWU Working Paper

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Abstract

Using hourly data, we show that the convergence of German and French electricity spot prices depends on the employed generation mix structure, on the trade (export/import) capacity between the two countries, and on characteristics of neighbouring markets. Only when German and French electricity markets employ "similar" generation mixes price spreads vanish, and the likelihood for congestion of electricity flows is significantly reduced. This implies that, at least, a part of the convergence that was documented in recent literature is spurious, because it is not (only) driven by the forces of arbitrage, but by the similarity of the Generation structures. The direction of congestion matters in this regard. Furthermore, we document consistent evidence for the most important predictions of trade theory if markets are characterized by increasing marginal cost (i.e. supply) curves and limited cross-border capacities.
Original languageEnglish
Publication statusPublished - 2016

Publication series

NameDepartment of Economics Working Paper Series
No.237

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 211
  • 502013 Industrial economics
  • 502034 Regulatory economics

WU Working Paper Series

  • Department of Economics Working Paper Series

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