Electricity Reform in Europe

Electricity Reform in Europe

Towards a Single Energy Market

Edited by Jean-Michel Glachant and François Lévêque

The realisation of a European internal market for energy is still a work in progress. Written by leading European scholars and discussed with major energy stakeholders, this book presents a thorough analysis of the motives and methods needed to achieve a single European energy market.

Chapter 9: The EU Integration of the New Member States’ Electricity Markets – Testing for Wholesale Price Convergence Using the Kalman Filter

Georg Zachmann

Subjects: economics and finance, competition policy, energy economics, industrial economics, public sector economics


9. The EU integration of the new Member States’ electricity markets – testing for wholesale price convergence using the Kalman filter1 Georg Zachmann2 INTRODUCTION This chapter focuses on the integration process of the East European new Member States in the single electricity market. The advantages of a common electricity market are obvious: dissimilar national production and demand patterns can be combined to optimize the merit order internationally, intranational market power can be mitigated by international players and reserves can be used more efficiently by international sharing. Although this process has been underway for a few years, there is only a limited number of empirical works inferring the success of the common market policy in the electricity sector. This is the case not only for Eastern Europe, but for the EU single market as well. One can distinguish two approaches to the issue of integration: one that analyses the status quo market integration, and one that infers the process of convergence. In this context we understand integration as a static measure for the interaction of markets in a given period of time. The dynamic process of increasing market integration is called convergence. Zachmann (2005) summarizes the handful of studies on European market integration, all of which focus on Western Europe, the ‘old’ EU-15 or subsamples thereof. Studies on the integration of ‘new’ and ‘old’ Member States’ electricity markets do not exist so far. This is a deficit, since already before the political enlargement of the European Union in 2004, the...

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