RESEARCH HIGHLIGHT - Iberian exception: What was the cost of distorting electricity markets during the 2021–23 European energy crisis?

The Iberian exception: What was the cost of distorting electricity markets during the 2021–23 European energy crisis?

Highlights

  • Results suggested that the Iberian Exception (IE) successfully lowered the gas plant bids.
  • Iberian Exception distortions were large: power flows to Morocco and Andorra increased, and Iberia subsidised their power prices.
  • The Iberian Exception distorted electricity trade between Spain and France, raising costs for Iberian consumers.
  • The IE raises gas for power demand rises by 25% in Iberia and by 3.2% for the whole of the EU.
  • One quarter of the gas demand effect of the Iberian Exception is attributable to the increase in electricity exports to Morocco and France.

 

Abstract

European wholesale power prices increased to an unprecedented level during the energy crisis in 2022. To tackle the adverse impact on consumers, Spain and Portugal implemented the Iberian Exception (IE) in June 2022, intending to decouple power prices from the rest of Europe to reduce consumer energy bills, via capping the price of gas for power plants. The ‘exception’ was allowed by the European Commission (on behalf of the EU27) because it was deemed to be likely to have a limited pan-European impact on electricity prices. We focus on the direct impact of the policy on gas demand in Spain and in Europe via examination of the bid stack in the Iberian electricity market.

We find that the IE did reduce day-ahead power prices and that there were large increases in net exports to France and Morocco resulting in significant, partially offsetting, second round power price rises in Iberia. Gas for power demand increased by 25% from Iberian power plants relative to no IE (and by 3.2% at the whole EU level). IE Induced power exports from Spain account for around one quarter of the increase in gas for power demand in Iberia. We find no evidence that the extra Iberian gas for power directly increased gas prices at the main European gas hub (TTF).

 

Reseach: Hei Kan Lou, Michael G. Pollitt, David Robinson, Angel Vargas Arcos ‘The Iberian exception: What was the cost of distorting electricity markets during the 2021–23 European energy crisis?’ Elsevier: Energy Economics (2026). DOI: doi.org/10.1016/j.eneco.2026.109288

 

Faculty of Economics, University of Cambridge