The Iberian exception: estimating the impact of a cap on gas prices for electricity generation on consumer prices and market dynamics

As the volatility of short-term energy market prices increases due to exogenous shocks and the changing nature of the energy mix, market interventions are gaining importance in the policy debate. Accurate and robust quantification of their impact is becoming therefore essential. This paper conducts a causality analysis to evaluate the Spanish 'gas cap' for electricity generation during the 2022 energy crisis. We use Bayesian structural time series models to isolate its impact on affected consumers, primarily those under the regulated tariff, from June to December 2022. Our results show that the mechanism successfully lowered prices compared to a counterfactual scenario without the intervention. However, the policy also led to an increase in electricity generation from gas-fired combined cycle plants. In addition, exports to France increased by over 80\% after implementation, as Spanish wholesale prices became cheaper than French prices. Our analysis (1) provides an accurate quantification to date of one of the most consequential energy market interventions in recent years; (2) demonstrates the fruitful use of a novel evaluation method for energy policy; (3) highlights the trade-off between the short-term goal of consumer price relief and the long-term goals of fossil fuel reduction and decarbonisation.