A1443
Title: European electricity market integration: A volatility spillover approach
Authors: Cristina Pizarro-Irizar - University of the Basque Country (Spain) [presenting]
Aitor Ciarreta - University of the Basque Country (Spain)
Evelyn Lizeth Chanatasig - University of the Basque Country (Spain)
Ainhoa Zarraga - University of the Basque Country (Spain)
Abstract: The purpose is to apply a forecast-error variance decomposition approach, including both variances and covariances, for analyzing price volatility spillover effects across nine European electricity markets from 2015 to 2023. Static and dynamic analyses of aggregated spillover effects and their directional decomposition between markets are conducted. The static analysis shows a high degree of volatility transmissions, which indicates a high level of market integration, though there are differences from one country to another. The dynamic analysis shows that the evolution of the total volatility spillovers can be mainly related to the deployment of renewable electricity penetration, the increase in electricity flows between markets, and the exceptional increase in the natural gas price following the economic recovery after the pandemic, exacerbated by the war in Ukraine. Findings provide useful information to regulators to improve current and future policies regarding the European Union's goals for market integration and renewable energy penetration.
