Measuring the impact of market coupling on the Italian electricity market using ELFO++

This paper evaluates the impact on the Italian electricity market of replacing the current explicit auction mechanism with market coupling. Maximizing the use of the cross-border interconnection capacity, market coupling increases the level of market integration and facilitates the access to low-cost generation by consumers located in high-cost generation countries. Thus, it is expected that a high-priced area such as Italy could greatly benefit from the introduction of this mechanism. In this paper, the welfare benefits are estimated under alternative market scenarios for 2012, employing the optimal dispatch model ELFO++. The results of the simulations suggest that the improvement in social surplus is likely to be significant, especially when market fundamentals are tight.