This paper aims to assess the influence of wind power generation on the market splitting behaviour of the Iberian electricity spot markets.
We use logit models to express the probability response for market splitting of day-ahead spot electricity prices together with explanatory variables like, wind speed, available transmission capacity and electricity demand.
The results show that the probability of market splitting increases with the increase of wind power generation. The European interconnection capacity target of 10% of the peak demand of the smallest interconnected market has to be reconsidered, in order to keep electricity market integration a reality.
As demonstrated, investment in interconnection capacity has to follow the investment and deployment of further wind power capacity, so coordination policies governing both interconnection development and renewable incentives should be designed.
JEL Classification: C10, C35, D47.
Keywords: Electricity Market Integration, Market Splitting, Renewable Energy.