The Effect of a New Power Interconnector on Energy Prices Volatility: The Case of Sicily

ABSTRACT Integrating energy islands into the European electricity market is a key challenge for the energy transition. This study investigates the impact of the ‘Sorgente–Rizziconi’ interconnector, activated on 28 May 2016, on electricity price volatility in the Sicilian market zone, which had previously been fully isolated from mainland Italy. Using daily data from 2015 to 2018, the analysis applies a semi‐parametric GARCH model with a logistic intervention function to estimate changes in conditional price variance. A fully non‐parametric additive model is employed as a robustness check, allowing the data to shape volatility dynamics without imposing a predefined structure. The results reveal that the interconnector significantly increased price volatility in Sicily, without reducing average price levels. No significant effects were observed in other Italian market zones. These findings highlight the context‐dependent nature of infrastructure impacts and suggest that physical integration alone does not guarantee price stability. The results have important implications for energy policy, investment planning and risk management in electricity markets.