A Cluster Analysis of the Italian Electricity Day-Ahead-Market

The last two decades present a wave of deregulation and privatization of electricity industries in several nations including U.S., U.K., Spain, Norway and Italy. This process started in Italy in 1992 ended in 2007 when the Electricity Market has been created. Competition in the production and sale has become focal in political debates related to electricity (Hunt). The Italian Power Exchange was born as a consequence of Bersani's law dated 16th march 1999; starting from the following year, customers had the possibility of stipulating bilateral contracts directly with freely selected providers. Just after the year 2004 an Electricity Exchange has been created, it was committed to ``Gestore del Mercato Elettrico'' (GME). In this paper we consider time series of prices in Day-Ahead Market(MGP) for each hour of the next day in the year 2009. In this market, GME accepts Offers/Bids by Merit Order, and accepted supply offers are remunerated at the Zonal Clearing Price (one price for each zone). Accepted demand bids are remunerated at the National Single Price (PUN). Italy is divided into 18 zones. We consider cross analysis of prices, where zones have been classified according to a suitable metric based on the correlation among them. By mean of a Linkage Algorithm an interesting cluster structure is obtained; we show the presence of some very close (in terms of correlation) groups and we study the evolution of cluster structure as a function of distance. The last result suggests to reduce the zonal prices to only three main groups in order to reduce the costs of the auction mechanism since it has been shown (Grilli) that the structural problems in terms of production do not allow the Deregulated Italian Electricity Market (also supported by any kind of auction model) to be efficient and, on the contrary, it appears useless and also costly.