The Iberian mechanism impact on the day-ahead electricity prices and on consumers and inframarginal power producers welfare

In response to the escalation in fossil fuel prices triggered primarily by the conflict in Ukraine, the Governments of Portugal and Spain agreed to create an extraordinary and temporary measure known as the Iberian mechanism. This initiative aimed to alleviate the pressure on electricity prices by detaching them from the fluctuations in natural gas prices. This study investigates the impact of the Iberian mechanism on the day-ahead electricity prices, consumers, and inframarginal producers. The analysis reveals that while consumers have obtained benefits from the mechanism, it has posed challenges for inframarginal producers. Moreover, the reduction in prices within the Iberian market has driven an increase in electricity exports from Spain to France.