Mapping the Wholesale Day-Ahead Market Effects of the Gas Subsidy in the Iberian Exception

Carlos González- de Miguel, Lucas van Wunnik and Andreas Sumper ()
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Carlos González- de Miguel: Departament d’Enginyeria Elèctrica, Universitat Politècnica de Catalunya, ETS d’Enginyeria Industrial de Barcelona, Av., Diagonal, 647, Building G, 08028 Barcelona, Spain
Lucas van Wunnik: Departament d’Organització d’Empreses, Universitat Politècnica de Catalunya, ETS d’Enginyeria Industrial de Barcelona, Av., Diagonal, 647, Building H, 08028 Barcelona, Spain
Andreas Sumper: Centre d’Innovació Tecnològica en Convertidors Estàtics i Accionaments (CITCEA-UPC), Departament d’Enginyeria Elèctrica, Universitat Politècnica de Catalunya, ETS d’Enginyeria Industrial de Barcelona, Av., Diagonal, 647, Building G, 08028 Barcelona, Spain

Energies, 2024, vol. 17, issue 13, 1-21

Abstract: Amidst the global energy crisis in 2022, the Spanish and Portuguese governments introduced a subsidy to natural gas (“the Iberian exception”), attempting to lower the wholesale electricity market prices, with the understanding that gas-fired-combined cycle gas turbines (CCGTs) are price-setting technologies most of the time, directly or indirectly. The subsidy succeeded in lowering the market price but induced several other effects, such as (1) the increase in cleared energy in the Spanish market (mostly produced with gas), (2) the bias in the import/export cross-border position between Spain and France (Spain became a net exporter to France immediately), or (3) the consequent increase in congestion rents, which serve to lightly finance the subsidy, among other effects. This paper provides a framework for clustering the different effects based on the market participation phases: the subsidy, the market bidding, the market results, and surplus and rents. Moreover, this paper builds on the theoretical market models, with and without subsidies, and with and without cross-border exchanges. Based on the real market bids, the subsidies, and the generators’ data, we reconstruct the supply and demand curves and simulate the counterfactual market scenarios in order to illustrate and quantify the effects. We highlight the quantification of the theoretical effect of the transfer of rents, from non-fossil to fossil fuel producers, induced by the gas subsidy.

Keywords: electrical energy; natural gas; wholesale electricity market; market model; supply and demand curves; subsidy; market clearing; cross-border exchange; surplus; redistribution of rent (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2024
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