| dc.description.abstract | This thesis studies NordLink, a subsea interconnector, and its effect on electricity price
convergence between Norway and Germany. To measure market convergence, we use
the spread, defined as the difference between electricity prices in two countries. We
employ a difference-in-difference estimation using Belgian electricity prices to estimate
the counterfactual trend for German prices to disentangle the causal NordLink effect.
This analysis yields the main result of the thesis, which is that NordLink has, on average,
reduced the spread by 1 2 . 3 per MWh since its introduction
We further examine the drivers behind the flow of electricity in NordLink to uncover
when and why prices converge. We argue that structural difference in the countries'
energy mix is the primary driver determining the flow in NordLink. Germany's relatively
rigid electricity production leads to a deficit during high-demand periods, which is well
complimented by Norway's flexible hydropower production.
This thesis also discusses how the merit order affects electricity prices and, therefore,
must be considered when analysing market convergence. We demonstrate that the merit
order can have a significant impact on the electricity price spread and should therefore be
considered when analysing market convergence. Overlooking this externality could lead
to an overestimation of the integration effects of interconnectors like NordLink. | en_US |
