Abstract
In this paper, we discuss electricity market design in Europe in light of the 2021-23 energy crisis, drawing on several of our Centre on Regulation in Europe (CERRE) reports. We outline the relevant theoretical background with respect to wholesale electricity markets, retail electricity markets, excess profits regulation, renewables support schemes and emergency interventions. We next outline the responses of the European Union, France, Norway, the Netherlands and Great Britain to the crisis. This allows us to make a number of recommendations about the future design of the electricity market in the light of theory and recent experience. These include a role for long-term contracts, the extension of the single market, the place for increased price granularity, appropriate energy taxation and the necessity of better monitoring of National Energy and Climate Plans to ensure adequate aggregate investment.
•We review lessons from the EU and the reactions of four European countries to the 2021-23 energy crisis.•We summarise the theory relevant to the policy responses to the electricity crisis.•We make recommendations for future policy around electricity markets in Europe.•We find that wholesale markets performed well in the crisis, but retail markets less so.