Evaluation of a cross-border electricity interconnection: The case of Spain-France

This paper focuses on the economics of a cross-border transmission interconnector. The domestic spot electricity price is modelled as a stochastic process with mean reversion and jumps; it also includes a deterministic part that accounts for hourly and daily sasonalities along with non-working days. The two domestic spot prices are assumed to be correlated. As an illustration of the approach, we consider the particular case of the interconnector between Spain (an 'electric island') and France. Domestic prices are first calibrated and then used for simulating the stochastic behavior of the price gap between the two countries. In addition, the actual import/export behavior as a function of the price gap is captured by a Tobit model fitted from observed data. This model is then combined with the simulated price gaps to compute a multiple series of hourly prices and exports/imports of electricity through the interconnector. Drawing on these simulations we derive the probability distributions of revenues and expenses from exports and imports, and also some risk measures. According to our results, the economics of this interconector depends on different domestic seasonalities (hourly and daily), the growing trend of the price gap and some stochastic idiosyncrasies. They call for an expanded link. (c) 2021 The Author(s). Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).