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Navigating the electric storm: assessing policy responses to Europe's energy shock

Author

Listed:
  • Matteo Alpino

    (Bank of Italy)

  • Emanuela Ciapanna

    (Bank of Italy)

  • Luca Citino

    (Bank of Italy)

  • Gabriele Rovigatti

    (Bank of Italy, CEPR)

Abstract

We take an off-the-shelf model of the day-ahead electricity market, adapted from Reguant (2019), and use it to study how different emergency policy interventions proposed in response to the 2021–2022 European energy crisis would feed into short-run wholesale electricity price and consumption dynamics. Calibrating the model to Italian data, our analysis predicts that an EU-wide cap on natural gas prices significantly lowers electricity prices, while consumed quantities increase only marginally. A mandated reduction in electricity demand during peak hours leads to modest price declines, while a national cap on gas prices for electricity generation triggers a sharper increase in consumption. These findings suggest that emergency interventions can mitigate the short-term impact of price shocks, though they may also lead to increases in energy consumption and market distortions.

Suggested Citation

  • Matteo Alpino & Emanuela Ciapanna & Luca Citino & Gabriele Rovigatti, 2025. "Navigating the electric storm: assessing policy responses to Europe's energy shock," Temi di discussione (Economic working papers) 1491, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1491_25
    as

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    References listed on IDEAS

    as
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    2. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets," American Economic Review, American Economic Association, vol. 98(1), pages 237-266, March.
    3. Christoph Graf & Federico Quaglia & Frank A. Wolak, 2020. "Simplified Electricity Market Models with Significant Intermittent Renewable Capacity: Evidence from Italy," NBER Working Papers 27262, National Bureau of Economic Research, Inc.
    4. Mar Reguant, 2014. "Complementary Bidding Mechanisms and Startup Costs in Electricity Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1708-1742.
    5. Tatyana Deryugina & Alexander MacKay & Julian Reif, 2020. "The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation," American Economic Journal: Applied Economics, American Economic Association, vol. 12(1), pages 86-114, January.
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    7. Michele Fioretti & Jorge Tamayo, 2021. "Saving for a Dry Day: Coal, Dams, and the Energy Transition," Working Papers hal-03389152, HAL.
    8. Matteo Alpino & Luca Citino & Annalisa Frigo, 2023. "The effects of the 2021 energy crisis on medium-sized and large industrial firms: evidence from Italy," Questioni di Economia e Finanza (Occasional Papers) 776, Bank of Italy, Economic Research and International Relations Area.
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    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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