Econonomics of Energy and Environmental Policy

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Electricity Markets in Transition and Crisis: Balancing Efficiency, Equity, and Security

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 become an instrument of cost-effective attainment of green targets and balancing the elements of the 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, their distributional implications call for revisiting how resources are allocated to and outcome of the market. We revisit several dimensions of market design with a view to the recent calls and to overhaul them.
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Keywords: Electricity, market design, energy markets, natural gas, energy reform, affordability, security of supply, sustainability

DOI: 10.5547/2160-5890.13.1.tjam

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Published in Volume 13, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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