Assessing the Impact of NordLink on Day-Ahead Prices in NO2 and Germany: A Quantile Regression Approach
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- Master Thesis 
This thesis studies the new interconnector NordLink's effect on electricity prices in the Norwegian price area N 0 2 and in Germany. When examining the cable's price effect, we assess how the price volatility has developed, whether price convergence between the areas has occurred, and if the highest price levels in Germany have been reduced. The study is conducted by estimating a quantile regression model for both areas. In the models, we control for various factors known to impact day-ahead electricity prices. The variable of interest is a dummy variable that marks the first exchange of electricity through NordLink, which allows for a before-after analysis of the cable's price effect on both areas. Our results indicate that NordLink has had a price-reducing effect in the German market, while it has increased prices in N0 2 for the given period. Hence, price convergence between the previously separated markets is seen as an effect of the cable. The results also show that NordLink has had the most significant impact on German prices at the highest parts of its distribution, confirming a peak shaving effect. Moreover, the results show decreasing price volatility in Germany and partial evidence for volatility exacerbation in N02. Further, the thesis argues that through NordLink, gas and EUAs' effect on electricity prices in N0 2 has been strengthened. Additionally, we find renewables' downward pressure on electricity prices to be strengthened in both areas after the opening of NordLink. In Germany, the price-reducing effect from NordLink is only found in conjunction with renewables.