This paper aims to assess some determinants on the integration level of the South
West Europe regional electricity spot markets created under the initiative launched
by the European Regulators Group for Electricity and Gas. The integration of
the European South-West regional electricity spot market relies on the physical
interconnection between two pairs of Transmission Systems: Portugal-Spain
and Spain-France. Interconnection capacity is thought to be critical to ensure
electricity market integration and was therefore studied. Two other determinants
were included in our study, corresponding to weather conditions: temperature
and wind. Whilst temperature is thought to have influence on demand, wind on
the other hand should have influence on available generation. Results obtained
from a vector autoregression model specification show interconnection capacities
related exogenous variables to not improve the model, whilst average temperature
contributes slightly to improve the model. It is to note that the introduction of
the exogenous variable average wind speed improves all models’ specification.
Strong integration was found between MIBEL markets, leading to the conclusion
that Price Splitting mechanism is efficient and contributes to the integration of
spot electricity markets. Also, as demonstrated by Grange-causality and impulse
response analysis, there is a weak integration level between MIBEL and Powernext.