Evolution of electricity markets: Does sequencing matter?

This paper addresses three questions that are relevant to integrating different regional transmission areas. Market integration normally increases the number of competitors and should therefore reduce prices but the first section shows that prices could rise when the number of generator s initially increases. Regulatory effort will also be affected by market integration. If the number of generators in either market is low, then our analysis suggests that the outcome depends on whether the regulators act independently or coordinate. Finally, if markets are gradually combined into larger units, the choice of transmission allocation (coordinated auctions or market coupling) will affect the prospects of making further gains and hence could lead to incomplete reform.