Navigating the Electric Storm: Assessing Policy Responses to Europe’s Energy Shock

Matteo Alpino, Emanuela Ciapanna, Luca Citino and Gabriele Rovigatti

No 19981, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We take an off-the-shelf model of the day-ahead electricity market, in the spirit of (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 quantity dynamics. Calibrating the model to Italian data, our analysis shows that an EU-wide cap on natural gas prices significantly reduces 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 due to cross-border trade incentives. These findings suggest that emergency interventions can mitigate the short-term impact of price shocks, though they may also introduce inefficiencies in terms of energy consumption and market distortions.

Keywords: Electricity; market (search for similar items in EconPapers)
JEL-codes: E10 E20 J60 K40 L50 O30 (search for similar items in EconPapers)
Date: 2025-02
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