2016/04/01 by Werner Antweiler · 87 citations
Economics, Econometrics and Finance · Energy · Engineering · Social Sciences · #Business cycle #Canadian Policy and Governance #Computer science #Consumption smoothing #Econometrics #Economics #Electricity #Engineering #Global Energy Security and Policy #Global trade and economics #International economics #International trade #Macroeconomics #Marginal cost #Microeconomics #Reciprocal #Smoothing
paper · pdf · doi:10.1016/j.jinteco.2016.03.007
published in Journal of International Economics 101, 42-51 (Elsevier BV)
openalex publication_date 2016/04/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/01
This paper develops a novel economic theory of two-way trade in a homogenous good, electricity. In this model of ‘reciprocal load smoothing,’ international trade provides insurance. As electricity demand is stochastic and correlated across jurisdictions, electric utilities can reduce their cost during peak periods by importing cheaper off-peak electricity from neighbouring jurisdictions. Two-way trade emerges in the presence of strongly convex marginal costs. Observed trade between Canadian provinces and US states strongly supports the theoretical model. Reciprocal load smoothing provides an economic rationale for integrating North America's fragmented interconnections into a continental ‘supergrid’ if technological progress in long-distance bulk transmission continues to reduce costs.