Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 4-2023: Electricity Markets in Transition and Crisis: Balancing Efficiency, Equity, and Security

Tooraj Jamasb (), Rabindra Nepal () and Daniel Davi-Arderius
Additional contact information
Tooraj Jamasb: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Rabindra Nepal: University of Wollongong
Daniel Davi-Arderius: University of Barcelona

Abstract: Two electricity market crises following the lifting of post-Covid restrictions in 2021 and the natural gas supply interruptions in 2022, challenged the functioning of the EU electricity market and its design. This paper argues that the market design was already ripe for an overhaul as the efficient market paradigm has gradually given way to as instrument of cost-effective attainment of green targets and balancing of the elements of energy trilemma. We discuss the linkages between the long-term and short-term markets. While policy interventions to alleviate short-term affordability are important, they cannot constraint the long-term sustainability and security of supply. Short-term electricity markets have, technically, worked according to design. However, the distributional implications of them call for revisiting how resources are allocated to and operate in the market. We revisit several dimensions of market design with a view to the recent calls and to review and overhaul them such as windfall tax, contract for differences, market decoupling etc.

Keywords: Electricity; Market design; Energy markets; Natural gas; Energy reform; Affordability; Security of supply; Sustainability

JEL-codes: D20; D30; D60; L10; L50

Language: English

28 pages, February 15, 2023

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