Energy Price Ceilings with Partial Cover A Dutch Master?

Following the surge in energy prices and the financial stress this created for many households, several EU member states reacted with price-capping measures to protect their citizens. The Netherlands designed a price ceiling on the fly, in which households pay lower prices on limited amounts of gas and electricity. Marco Haan, Professor of Industrial Organisation at the University of Groningen, and Maarten Pieter Schinkel, Professor of Economics at the University of Amsterdam, analysed the system and gave an early warning that it would reduce competition on retail markets, driving up prices, profits, and subsidies. Their analyses have just become all the more relevant, considering that the proposal for the EU’s electricity market design, which was presented by the European Commission on 14 March 2023, is closely modelled on the Dutch price ceiling system. The authors present alternative designs that deliver the same values of income support to households, while maintaining competition and incentives to conserve energy.