Research

Working Papers

• Unpacking the Distributional Implications of the Energy Crisis: Lessons from the Iberian Electricity Market, joint work with Natalia Fabra and Mateus Souza (CEPR Discussion Paper, CESifo Working Paper)

  The 2021-2023 European energy crisis, triggered by the war in Ukraine, led to broad policy interventions in energy markets. In contrast to the retail-side measures and public transfers implemented elsewhere, Spain and Portugal targeted the wholesale electricity market through the so-called Iberian solution. We quantify the distributional implications of the crisis and this market intervention on Spanish electricity firms and across consumer groups. We find that the crisis shifted substantial wealth from consumers to generators, with regressive impacts among consumers. Conversely, the policy’s relief was progressive, delivering larger gains to lower-income groups.

Ongoing Research Projects

• “Robust Risk-Sharing Contracts with Costly Signaling”, joint work with Laurent Lamy (Slides)

  We consider a principal-agent model under moral hazard with a risk-neutral principal and a possibly risk-averse agent. We analyze contracts where transfers are contingent on the realized production and also on a state-dependent costly signal about the expectation of the output distribution chosen secretly by the agent. We characterize the set of contracts whose equilibrium outcome Pareto-dominates the outcome of a residual claimant contract in a robust manner, i.e. for any possible realization of the agent’s characteristics: we establish that such robust risk-sharing contracts are menus of equity contracts, with a set of constraints regarding the function that maps the signal to the equity, i.e the percentage stake of output transferred to the agent. Under mild restrictions on the lower bound of the signaling costs, we characterize a unique optimal robust Pareto-improvement.

• “Renewables and Electricity Spot Prices: An incentive-risk trade-off for contract design” (WP, slides)

  Support mechanisms for variable renewable electricity (VRE) projects that expose firms to electricity spot prices pose a trade-off for regulators: they provide incentives for investors to develop more valuable projects, but they increase the risk borne by those investors and induce larger risk premiums. A variety of contracts, often referred to as sliding feed-in premiums, attempt to preserve the former while mitigating the latter. I assess whether and which specific contract designs succeed in doing so by quantifying both risk premiums and incentives provided to firms, in the context of the French power system. This quantification is based on simulations of the power dispatch, which allow us to account for the CO2 emissions displaced by a sample of individual VRE projects and to simulate the revenues of these projects in scenarios involving exogenous shocks to assess the risk they face. Findings show that sliding feed-in premiums both mitigate the risk premiums and provide good incentives as long as they insure against the yearly average of electricity prices, while insuring against average prices over shorter periods distorts incentives to build the most valuable projects. I also find that if VRE subsidies are motivated by the CO2 emissions displaced, rather than having fixed premiums per unit of electricity produced, the premiums should be proportional to electricity spot prices to provide better incentives.

• “Robust Production Insuring Procurement and their Pitfalls”, joint work with Laurent Lamy (WP)

  In a procurement setting involving both moral hazard and ex post risk where the contracting rule depends on realized production, we formalize a concept of robust insurance provision which reduces risk premiums with a prior-free approach. This leads us to analyze procurement where the auction-determined contract depends not only on the contractor’s bid but also on a declaration on his expected production. For any given menu of linear contracts, we characterize the corresponding production-insuring menus and establish a general incentive to overstate expected production. We then analyse the pitfalls associated with false declarations in the lowest-price auction while putting aside moral hazard. We illustrate our analysis through simulations calibrated on a few offshore wind power auctions in France.

• “Comparing the social benefits from variable renewable energy projects”

• “Renewable electricity support in Europe: the trade-off between risk and incentives under sliding premium schemes”, joint work with Laurent Lamy