Unpacking the Distributional Implications of the Energy Crisis: Lessons from the Iberian Electricity Market

The 2021-2023 European energy crisis caused by the war in Ukraine prompted broad policy interventions across energy markets. In contrast to the retail-side subsidies and public transfers implemented elsewhere, Spain and Portugal targeted the wholesale electricity market through the so-called Iberian solution. Combining wholesale market simulations with machine learning techniques, we quantify the distributional implications of the crisis and this intervention on Spanish electricity firms and consumers. The crisis shifted substantial wealth from consumers to generators: power plant profits rose by € 29 Billion. Even accounting for the Iberian solution and the accompanying energy-saving measures, the crisis remained highly regressive — the lowest income quintile lost 3.4% of disposable income, three times the relative burden of the highest quintile. Without interventions, the crisis would have been considerably more costly for all households. Further, the policy package delivered proportionally larger relief to lower-income groups, at no net fiscal cost.