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The Iberian Exception: what was the cost of distorting electricity markets during the 2021-23 European energy crisis?

Author

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  • Hei Kan Lou
  • Michael G Pollitt
  • David Robinson
  • Angel Vargas Arcos

Abstract

European wholesale power prices increased to an unprecedented level during the energy crisis in 2022. To tackle the adverse impact on consumers, Spain and Portugal implemented the Iberian Exception (IE) in June 2022, intending to decouple power prices from the rest of Europe to reduce consumer energy bills, via capping the price of gas for power plants. The ‘exception’ was allowed by the European Commission (on behalf of the EU27) because it was deemed to be likely to have a limited pan-European impact on electricity prices. We focus on the direct impact of the policy on gas demand in Spain and in Europe via examination of the bid stack in the Iberian electricity market.
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Suggested Citation

  • Hei Kan Lou & Michael G Pollitt & David Robinson & Angel Vargas Arcos, 2025. "The Iberian Exception: what was the cost of distorting electricity markets during the 2021-23 European energy crisis?," Working Papers EPRG2513, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg2513
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    2. Fabra, Natalia & Leblanc, Clement & Souza, Mateus, 2025. "Unpacking the Distributional Implications of the Energy Crisis: Lessons from the Iberian Electricity Market," CEPR Discussion Papers 20593, Centre for Economic Policy Research.

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    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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