Impact of grid innovations on electricity price volatility in Italian island markets

Electricity market outcomes, specifically prices and volumes, are significantly influenced by infrastructures. In Italy, electricity market zones have unique features due to interconnection levels, energy mixes, and consumption patterns, especially in Sicily and Sardinia, with their limited mainland connections. The 2016 completion of the Sorgente-Rizziconi cable enhanced the link between Sicily and the mainland, affecting day-ahead prices. The impact of grid innovations on the volatility of zonal electricity prices in Sicily is examined by analyzing day-ahead prices and their structural components. In a wide sense, it also forecasts the effects of future grid developments on the Sardinian and Sicilian markets. Studying these island markets is crucial to understanding how infrastructure affects price volatility. These findings can potentially be generalized to other markets with suitable adaptations.