TRADE AND PRICE VARIATION IN AN INTEGRATED EUROPEAN POWER MARKET

This paper examines the potential gains in terms of increased social s urplus from integrating the power markets in Europe and assesses the s cope for free seasonal and diurnal trade in a setting of Third Party A ccess (TPA). We construct an equilibrium model at the level of the who lesale markets, taking account of the existing power generating infras tructure (of varying flexibility) as well as the existing transmission network interconnecting the countries involved. The model indicates a n overall gain from integrating the power markets. Electricity prices are substantially reduced for all regions involved, thus implying a si gnificant redistribution of income from producers to consumers. Trade flourishes with regions establishing themselves as either pure exporte rs, pure importers or as intermediaries acting as transit countries.