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Reforming European electricity markets: Lessons from the energy crisis

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  • Fabra, Natalia

Abstract

The surge in gas prices due to the Ukrainian war has sparked a European energy crisis, triggering discussions about overhauling electricity markets. The European Commission (EC) proposes maintaining short-term electricity markets, fostering long-term Power Purchase Agreements (PPAs) and Contracts-for-Differences (CfDs), and permitting Member States to regulate retail prices during emergencies. This paper proposes a market design aligning with the EC’s plan while introducing additional elements to address its limitations. Notably, it advocates an enhanced reliance on CfDs tailored to the attributes of the generation technologies. This approach seeks to strike a balance by exposing technologies to short-term price signals while allocating investment risks efficiently.

Suggested Citation

  • Fabra, Natalia, 2023. "Reforming European electricity markets: Lessons from the energy crisis," Energy Economics, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:eneeco:v:126:y:2023:i:c:s0140988323004619
    DOI: 10.1016/j.eneco.2023.106963
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    References listed on IDEAS

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    Cited by:

    1. Lukas Brunninger & Markus Dertwinkel-Kalt & Klaus Gugler & Sven Heim, 2024. "The Gas Price Brake Increases Gas Prices: Empirical Evidence," Department of Economics Working Papers wuwp372, Vienna University of Economics and Business, Department of Economics.
    2. Pourkhanali, Armin & Khezr, Peyman & Nepal, Rabindra & Jamasb, Tooraj, 2024. "Navigating the crisis: Fuel price caps in the Australian national wholesale electricity market," Energy Economics, Elsevier, vol. 129(C).
    3. Bie, Fan & Zhou, Luyao & Liu, Shuo & Yang, Tao, 2024. "Government digital transformation, resource curse and green total factor energy efficiency in Chinese cities," Resources Policy, Elsevier, vol. 92(C).
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    5. Goodell, John W. & Gurdgiev, Constantin & Paltrinieri, Andrea & Piserà, Stefano, 2024. "Do price caps assist monetary authorities to control inflation? Examining the impact of the natural gas price cap on TTF spikes," Energy Economics, Elsevier, vol. 131(C).

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    More about this item

    Keywords

    Electricity; Energy crisis; Energy transition; Market design;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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