Multiscale Analysis of European Electricity Markets

Electricity is considered a new commodity, mainly since the start of the electricity markets liberalization. However it represents an increasingly important sector of trading and as such a challenging area of research. Here we focus on the role of electricity power exchanges for the creation of a single European electricity market, on a di¤erent empirical perspective. We use daily power exchange prices of 6 European electricity markets resorting to a novel econometric technique to study correlation at di¤erent time scales, known as wavelet analysis, through coherence and phase analysis. Results give limited support to the assumption of a single "European electricity market", especially at lower scales (high frequency data). Although some European countries share a common trend, the hypothesis of strong integration holds only for some geographically closer countries, but not the perfect integration among the markets considered in the sample. We also …nd that despite the year 2005, coherence among the series has been high, whereas we also try to infer some possible causes for this lack of perfect integration in the current days. Keywords –Electricity Prices; Continuous Wavelet Transform; Wavelet Coherency; Wavelet phase; Comovements; European Regulation EFM classi…cation codes: 350; 630