Ambec, Stefan, Crampes, Claude and Tirole, Jean (2023) The design of electricity markets : an economic analysis / Analyse économique de l’organisation du marché de l’électricité. TSE Working Paper, n. 23-1484, Toulouse

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Abstract

Fighting against global warming requires electrifying energy uses and giving up on carbon-based power. Consequently, the organization of electricity production and transmission must not only promote short-term efficiency in dispatch, but also send out reliable signals to guide investment by producers and consumers; and this under normal macroeconomic conditions as well as in the face of unforeseen events, such as Covid 19 and Russia's invasion of Ukraine. To meet these challenges, the European authorities and the EU member states are negotiating the introduction of long-term physical and financial contracts that will complement wholesale electricity markets. This note compares the costs and benefits of these contracts and emphasizes the assignment of risks among stakeholders.