Assessing the Impact of the Iberian Exception on Day-Ahead Prices in Spain : A Difference in Difference and Quantile Regression Approach
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- Master Thesis 
The energy crisis of 2021 and 2022 has had severe consequences for Europe. The skyhigh energy prices have reduced economic growth, created inflation, and increased GHG emissions. In an effort to tackle the record high prices, Spain and Portugal have been granted an exception by the EU to implement a cap on the price of gas used for generating electricity. The price cap, best known as the Iberian exception, has sought to limit the impact of volatile gas prices in the electricity market by decoupling the gas price from the electricity price. Within the context of the crisis, it is vital to assess whether the implemented measures have achieved their objectives. This thesis studies the Iberian exception's impact on day-ahead electricity prices in Spain. By estimating a difference in difference model, we find a causal effect of the Iberian exception on day-ahead prices, confirming that the instrument does reduce electricity prices. Furthermore, the results from our quantile regression models show that the gas cap has reduced electricity prices across the price distribution, and reduced price volatility. The results confirm a partial decoupling of the gas price and the electricity price, and the price reducing effect of the instrument is only evident in conjunction with the gas price. While our thesis provides evidence that the Iberian exception has been efficient in reaching its goal, it also highlights multiple adverse effects. The decoupling of gas and electricity prices has led to increased gas generation, alongside increased exports to France, thereby benefitting French consumers. Our analysis show that the Iberian exception can be considered a success in Spain. However, based on our results we do not recommend similar interventions in other European countries, as the adverse effects would exceed the benefits.