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

Manuel Hidalgo-Pérez (), Jorge Galindo (), Natalia Collado () and Ramón Mateo ()
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Manuel Hidalgo-Pérez: Department of Economics, Universidad Pablo de Olavide
Jorge Galindo: Esade Ramón Llul University
Natalia Collado: Esade Ramón Llul University
Ramón Mateo: BeBarlet

No 23.08, Working Papers from Universidad Pablo de Olavide, Department of Economics

Abstract: 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.

Keywords: policy evaluation; gas price cap; consumer prices; gas consumption. (search for similar items in EconPapers)
JEL-codes: D12 Q41 Q48 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2023
New Economics Papers: this item is included in nep-ene and nep-reg
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