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.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.