Wired together: Integration and efficiency in European electricity markets

• Published in: Energy economics Vol. 133; p. 107505
• Main Authors: Karahan, Cenk C., Odabaşı, Attila, Tiryaki, C. Sani
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-05-2024
• Subjects: Efficiency; Entropy; European electricity markets; Fractal dimension; Long-term memory; Market coupling; European electricity markets; C10; Q48; Fractal dimension; Efficiency; Long-term memory; Entropy; G14; Market coupling
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2024.107505

This study investigates the efficiency dynamics of spot and futures electricity markets across a sample of European countries, while taking into account the impact of market couplings. The analysis employs three distinct efficiency measures, namely entropy, Hurst measure, and fractal dimension, to examine the markets of ten different countries. Specifically, entropy is used to gauge the randomness in market prices, while Hurst measure captures the long-term memory of prices, and fractal dimension measures the roughness and irregularity of price series. Our results indicate that these markets display analogous patterns of behavior, with improvements in efficiency observed following the introduction of structural and regulatory changes, such as market couplings. These findings underscore the potential advantages of market liberalization and energy market integration for both consumers and industry players, thus offering important insights for policy makers in this area.
•Market couplings promote integration and efficiency in European electricity markets.•Entropy, Hurst, and fractal dimension were employed to analyze market efficiency.•European spot and futures electricity markets became more efficient from 2008–2021.•The results suggest efficiency improvements post-structural changes.•The findings offer insights to policymakers in design of electricity markets.