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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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    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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