The unfolding of regional electricity markets: measures to improve the firmness of cross-border trading

Abstract

Fully integrated regional electricity markets would result in large efficiency gains and potentially huge economic savings for all the countries involved. This is true in the short term (lower system operation costs), but also, and more relevantly, in the medium and especially long term (optimal resources exploitation and coordinated capacity expansion). Nevertheless, for regional markets to be successful, new institutional arrangements are necessary to improve trust in the firmness of cross-border contracts and trades, especially during scarcity conditions. This article identifies the main barriers that have hampered cross-border trading in regional markets so far, and discusses alternatives to mitigate their negative impact.