The effects of the Iberian exception on inflation:

A synthetic-controls approach

Miguel Haro Ruiz

Christoph Schult

Christoph Wunder

Average wholesale electricity prices in the EU

the energy crisis

The Iberian exception

The IBerian EXception (IBEX)

Begins on June 15, 2022

Decouples the price of electricity from int'l gas prices:

  1. Sets limit to the price of gas-powered electricity
  2. Adjustment mechanism covers for potential loses
  3. Paid by consumers + exports to France

The exception of Iberia

    Strategies against energy crisis accros EU:

    • Tax reductions
    • Direct transfers
    • Retail market regulation

    IBEX: only measure to intervene wholesale market

Experimental setup

    The IBEX presents a natural experiment

    • While the Iberian market operates under new rules,
    • Other EU countries continue to follow directives

    Research goal:

      Estimating the causal impact of the IBEX on prices

Methods and Data

Methodology

    Counterfactual estimation via Synthetic controls (Abadie, 2021)

    Outcomes of interest

    • DAP: Day-ahead price of electricity
    • NRG: Energy-only Consumer Price Index (CPI)
    • xNRG: Non-energy CPI
    • CP00: All-items CPI

Software

Results

Observed and synthetic all-items CPI series for Spain

Observed and synthetic all-items CPI series for Spain

Average Treatment Effect: Spain and Portugal

90% confidence intervals

Discussion

What explains the difference?

    Spain

    • PVPC is indexed by day-ahead price
    • Serves ~40% of households and firms
    • Direct link between DAP and NRG

    Portugal

    • Retailers favor longer-term contracts
    • Slower link between DAP and NRG

The IBEX is responsible for...

    -40% in wholesale electricity price

    Spain: immediate and strong effect on CPI

    • -19 pts in energy inflation
    • -3.5 pts in overall inflation

    Portugal: Effect with 6-month delay

    • -12 pts in energy inflation in 2023
    • No effect on overall inflation

Energy-only inflation in Spain and Portugal

The IBEX: An effective policy which highlights the limitations of the PVPC

Miguel Haro Ruiz

m.haroruiz@gmail.com

theprior.xyz

References