|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.