Cross-border auctions in Europe: Auction prices versus price differences

Basic economics suggest that prices for scarce interconnector capacity should reflect (if not equal) the arbitrage from trade, i.e., of low cost suppliers selling to a high price country. This paper analyses empirically whether and to what extent cross-border auction prices for interconnectors reflect the whole-sale electricity price differences. The paper focuses on the following two interconnectors: The sea cable ldquoNorNedrdquo between the Netherlands and Norway, which came into operation on May, 6th 2008, connecting the North-Western-European market with the NordPool market and the interconnectors between Germany (E.ON and RWE) and TenneT (the Netherlands).