No. 1491 - Navigating the electric storm: assessing policy responses to Ekurope's energy shock
This paper employs a structural model of the Italian electricity market to assess the potential impact on prices and consumed quantities of three emergency policy measures proposed during the 2021–22 European energy crisis. The first two measures involve a cap on the price of natural gas used to generate electricity, implemented either at the European level ('gas price cap') or nationally ('Iberian exception'); the third measure is a mandatory reduction in consumption during peak demand hours ('demand peak-shaving').
An EU-wide gas price cap would have a broad price-containment effect without significantly increasing electricity consumption. By contrast, the introduction of a national cap would lead to a substantial increase in electricity production, due to higher exports to neighboring markets. A mandatory reduction in electricity demand during peak hours would have only modest effects on both overall consumption and prices.
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