Carlos Batlle’s research while affiliated with Comillas Pontifical University and other places

Recent data from the US Energy Information Administration reveals that nearly one in three households in the United States report experiencing energy poverty, and this number is only expected to rise. Federal assistance programs exist, but allocations across states have been nearly static since 1984, while the distribution of energy poverty is dynamic in location and time. We implement a LASSO-based machine learning approach using sociodemographic and geographical information to estimate energy burden in each US census tract for 2015 and 2020. We then compare the allocation to states from the Low Income Home Energy Assistance Program to an optimized allocation. We allocate funds to the most burdened households, providing them with enough assistance to reduce their energy expenditures so that their household energy burden is equal to a new maximum allowable energy burden. This markedly shifts funds from the northern cold-weather states to the southern warm-weather states.

Purpose of Review On March 14, 2023, the European Commission (EC) published the much awaited “Proposal for a regulation (…) to improve the Union’s electricity market design.” The proposed regulation reflects the verdict of the EC after several months of fervent debate triggered by the energy crisis that has affected the European region. In this paper, we discuss several crucial elements that are part of the proposed regulation. Recent Findings In a nutshell, we deem the EC has done a great job managing a highly complicated situation. The proposal preserves the crucial role of short-term electricity markets and puts the focus on the key flaw: the perennial incompleteness of long-term power markets. The EC has put forward a large battery of measures, covering different dimensions and with very different potential impacts on the market design. Summary Here we focus on what we consider to be the four key elements of the proposal: (i) the promotion of long-term contracting, (ii) interventions during electricity price crises, (iii) the strategy for an efficient supplier risk management, and (iv) flexibility support schemes and capacity remuneration mechanisms.

Europe started to go through an extremely severe energy crisis in the summer of 2021. The Brussels-based think tank Bruegel reported that governments spent billions of euros, representing several percentage points of their gross domestic product, to shield consumers and industry from high prices ( Figure 1 ). Even when considering that substantial public support, many end users were (at the time of writing, in February 2023) still facing energy affordability issues. At that time, it was not possible to foresee the end and whether an unprecedented scenario of a period of sustained high prices could repeat itself. However, what the energy crisis showed was that although it was a gas crisis, the current regulatory power market compound proved to be fragile to political interference. In this article, we elaborate upon a proactive regulatory-driven solution with the aim to protect (certain tranches of) end users from periods of sustained high electricity prices. Thereby, political turmoil leading to potential negative consequences for the ongoing decarbonization process can be avoided. We call our proposal affordability options .

On March 14, 2023, the European Commission (EC) published the much awaited “Proposal for a regulation (…) to improve the Union’s electricity market design”. The proposed regulation reflects the verdict of the EC after several months of fervent debate triggered by the energy crisis that has affected the European region. The declared objective of the proposal is “to accelerate a surge in renewables and the phase-out of gas, make consumer bills less dependent on volatile fossil fuel prices, better protect consumers from future price spikes and potential market manipulation, and make the EU’s industry clean and more competitive.” In this commentary, we discuss several crucial elements that are part of the proposed regulation. In a nutshell, we deem the EC has done a great job managing a highly complicated situation. In an extremely stressful moment, the biggest challenge has been the avoidance of entering into a regressive process that would have disabled some of the fundamental tools that have supported an increasingly efficient integration of the EU’s electricity systems. The proposal preserves the key role of short-term electricity markets and puts the focus on the key flaw: the perennial incompleteness of long-term power markets. The EC has put forward a large battery of measures, covering different dimensions and with very different potential impacts on the market design. Here we focus on what we consider to be the four key elements of the proposal: i) the promotion of long-term contracting, ii) interventions during electricity price crises, iii) the strategy for an efficient supplier risk management, and iv) flexibility support schemes and capacity remuneration mechanisms.

On the 23rd of January 2023, the European Commission launched a public consultation on the reform of the EU's electricity market design. Here we provide our perspective. We assume that the decision to intervene in the market, and the depth of the intervention, belongs to the political sphere. The scope of this paper is limited to a discussion of the implications that the different measures under considerations might have. We start by focusing on the revenue cap, mandated through the European Council Regulation published on the 6th of October 2022. We discuss that, while there are worse tools, certain implementation difficulties with the revenue cap lead to the conclusion that it is not advisable to keep it in place as a permanent feature of the market design. Further, we argue that the issue that has led to the current financial hardship is an incomplete long-term power market. In that regard, we recommend the introduction of a market maker obligation to improve liquidity in forward markets. We discuss complementary proposals that aim at completing the long-term market while fulfilling the two main objectives of the reform: facilitating the entry of renewable energy sources (RES) at the lowest system cost and limiting the impact of sustained high prices on end users' bills. We explain why these two different objectives are less related than often thought, since they concern different groups of stakeholders with radically different risk profiles, i.e., newly connecting RES units and existing generators. Regarding the former, we argue that even if currently RES costs decrease near or below grid parity, there are still very sound arguments to keep auctions for government-backed long-term contracts in place. Contract design is important and should be reviewed to remove distortion while limiting increases in investment risk. Regarding the latter, we recommend affordability options as the best suited tool to prevent end user bills to exceed reasonable levels.

The ongoing energy crisis has severely hit energy consumers in Europe. Although it is a gas crisis, the existing electricity market design has been made a scapegoat. In a speech about the rising electricity prices, Ursula von der Leyen, the president of the European Commission, even went as far as saying that “what is the problem is the structure of the [power] market” and “this [power] market system does not work anymore, we have to reform it”. Consequently, on the 23rd of January 2023, the European Commission launched a public consultation on the reform of the EU’s electricity market design. In this Research Commentary, we provide our perspective. We argue that the issue that has led to the current financial hardship is an incomplete long-term power market. We discuss proposals that aim at completing the long-term market while fulfilling the two main objectives of the reform: facilitating the entry of new renewables at the lowest system cost and limiting the impact of sustained high prices on end users’ bills. We argue that these two different objectives are less related than often thought, concern different groups of stakeholders, i.e., newly connecting generating units and existing generators, and require different regulatory solutions.

Since the first edition of this book (2015), capacity remuneration mechanisms (or simply capacity mechanisms) have become a fact of life in European Union Member States’ energy markets. Concerned about their security of supply, national governments are implementing subsidy schemes to encourage investment in conventional power generation capacity, alongside subsidized renewable energy sources. With the increasingly connected European electricity markets, the introduction of a capacity mechanism in one country not only tends to distort its national market but also may have unforeseeable consequences for neighbouring electricity markets. The second edition of this book will take stock of the experience so far with regard to how capacity mechanisms actually work and what consequences they have for the European internal electricity market. In particular, first, it will provide a cross-disciplinary view on capacity mechanisms, combining legal, economic, and policy perspectives; secondly, it will include a detailed overview of national capacity mechanisms and their implications for the EU internal market; thirdly, it will take a European approach, recognizing the need to understand the nature of market failures which are likely to occur in the European electricity markets; and, finally, it will offer an outsider view on the current developments in Europe, including contributions of recognized extra-EU energy experts. The second edition of this book is intended to serve as a point of reference for regulators and policy-makers on how to design optimal capacity mechanisms in Europe. It will be an invaluable resource for anyone interested in energy market design, regulation, and competition issues.

Since the first edition of this book (2015), capacity remuneration mechanisms (or simply capacity mechanisms) have become a fact of life in European Union Member States’ energy markets. Concerned about their security of supply, national governments are implementing subsidy schemes to encourage investment in conventional power generation capacity, alongside subsidized renewable energy sources. With the increasingly connected European electricity markets, the introduction of a capacity mechanism in one country not only tends to distort its national market but also may have unforeseeable consequences for neighbouring electricity markets. The second edition of this book will take stock of the experience so far with regard to how capacity mechanisms actually work and what consequences they have for the European internal electricity market. In particular, first, it will provide a cross-disciplinary view on capacity mechanisms, combining legal, economic, and policy perspectives; secondly, it will include a detailed overview of national capacity mechanisms and their implications for the EU internal market; thirdly, it will take a European approach, recognizing the need to understand the nature of market failures which are likely to occur in the European electricity markets; and, finally, it will offer an outsider view on the current developments in Europe, including contributions of recognized extra-EU energy experts. The second edition of this book is intended to serve as a point of reference for regulators and policy-makers on how to design optimal capacity mechanisms in Europe. It will be an invaluable resource for anyone interested in energy market design, regulation, and competition issues.