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Faculty of Economics

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Montoya, L.G., Guo, B., Newbery, D., Dodds, P. E., Lipman, G. and Castagneto Gissey, G.

Measuring inefficiency in international electricity trading

Energy Policy

Vol. 143 pp. 1-12: 111521

Abstract: Interconnectors reduce the cost of supplying electricity if they are operated efficiently. We show that established metrics which are used to monitor electricity trading inefficiency are inaccurate for several typical trading conditions. We propose two new metrics—the Unweighted and Price-Weighted Inefficient Interconnector Utilisation indices—to address these deficiencies. These metrics are substantially more accurate than existing ones and perform equally well whether or not interconnected markets have coupled trading. Our analyses show a substantial decrease in inefficient trading between Great Britain (GB) and both France and the Netherlands after the European Union's market coupling regulations were introduced in 2014.

Keywords: Electricity trading efficiency, Cross-border allocation, Interconnector, Market coupling, Metrics

Author links: David Newbery  

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