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Electricity Markets in Transition and Crisis: Balancing Efficiency, Equity, and Security

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Two electricity market crises following the lifting of post-Covid restrictions in 2021 and the natural gas supply interruptions in 2022, challenged the functioning of the EU electricity market and its design. This paper argues that the market design was already ripe for an overhaul as the efficient market paradigm has gradually given way to as instrument of cost-effective attainment of green targets and balancing of the elements of energy trilemma. We discuss the linkages between the long-term and short-term markets. While policy interventions to alleviate short-term affordability are important, they cannot constraint the long-term sustainability and security of supply. Short-term electricity markets have, technically, worked according to design. However, the distributional implications of them call for revisiting how resources are allocated to and operate in the market. We revisit several dimensions of market design with a view to the recent calls and to review and overhaul them such as windfall tax, contract for differences, market decoupling etc.

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  • Jamasb, Tooraj & Nepal, Rabindra & Davi-Arderius, Daniel, 2023. "Electricity Markets in Transition and Crisis: Balancing Efficiency, Equity, and Security," Working Papers 4-2023, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2023_004
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    References listed on IDEAS

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    1. Newbery, David, 2016. "Missing money and missing markets: Reliability, capacity auctions and interconnectors," Energy Policy, Elsevier, vol. 94(C), pages 401-410.
    2. Owen, Anthony D., 2006. "Renewable energy: Externality costs as market barriers," Energy Policy, Elsevier, vol. 34(5), pages 632-642, March.
    3. Costa-Campi, Maria Teresa & Davi-Arderius, Daniel & Trujillo-Baute, Elisa, 2020. "Locational impact and network costs of energy transition: Introducing geographical price signals for new renewable capacity," Energy Policy, Elsevier, vol. 142(C).
    4. Davi-Arderius, Daniel & Schittekatte, Tim, 2023. "Environmental Impacts of Redispatching in Decarbonizing Electricity Systems: A Spanish Case Study," Working Papers 1-2023, Copenhagen Business School, Department of Economics.
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    Cited by:

    1. Armin Pourkhanali & Peyman Khezr & Rabindra Nepal & Tooraj Jamasb, 2023. "Fuel Price Caps in the Australian National Wholesale Electricity Market," CAMA Working Papers 2023-39, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Gohdes, Nicholas & Simshauser, Paul & Wilson, Clevo, 2023. "Renewable investments, hybridised markets and the energy crisis: Optimising the CfD-merchant revenue mix," Energy Economics, Elsevier, vol. 125(C).
    3. Nicholas Gohdes & Paul Simshauser & Clevo Wilson, 2023. "Renewable investments in hybridised energy markets: optimising the CfD-merchant revenue mix," Working Papers EPRG2306, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.

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    More about this item

    Keywords

    Electricity; Market design; Energy markets; Natural gas; Energy reform; Affordability; Security of supply; Sustainability;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D30 - Microeconomics - - Distribution - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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