Electricity Markets in a State of Crisis: An Overview of the Suggested Policy Measures

Abstract

If the worst-case scenarios materialize during the upcoming winter months, electricity markets are in danger of plunging into a severe and crippling crisis. The situation unfolds against the backdrop economic sanctions imposed by the EU on Russian economy in the aftermath of the war in Ukraine and Russia’s retaliation in curtailing energy exports to the member countries. In Finland, some electricity users are bearing a greater burden of the ensuing market turbulence. Therefore, political consensus has emerged in support of providing some economic relief for those households facing rapidly increasing costs of living. However, as a general principle, consumers and firms should primarily rely on private means for preparing and withstanding temporary market fluctuations. Instead of broad, untargeted support measures, the policy action should mainly focus on providing temporary relief for those low-income groups who cannot cope with the increasing cost of electricity, while also taking measures to reduce pressure on excessive prices. Additionally, the government should focus its efforts in boosting domestic electricity production, with the goal of reducing the risk of rolling blackouts during the coldest days of the winter months. All households should also have an incentive, or at least a sense of national urgency, to adjust and save in electricity consumption.

Publication info

Research group
Macroeconomy and public finances
Series
ETLA Muistio - ETLA Brief 113
Date
01.09.2022
Keywords
Electricity markets, Taxation, Subsidies, Electricity shortage, Emissions trading, Investment
ISSN
2323-2463
JEL
H20, Q40, Q41, Q48
Pages
12
Language
Finnish