Decarolis studies the electricity market structure
The energy crisis of 2022 showed how exposed the European electricity market was to gas prices. But the real turning point was the discovery that volatility is not a hiccup. It is the new equilibrium of a system dominated by renewable sources. In fact, when sunlight and wind are abundant, prices plummet to zero or even become negative. When production drops, they rise rapidly. This is no longer a cyclical anomaly: it is the new normal in a decarbonized electricity system.
This electricity market structure is the subject of a new study by Francesco Decarolis (Department of Economics and BAFFI Centre, Bocconi University), “Reforming EU Electricity Market Design: PPAs, CfDs, and Long-Term Signals for a Renewable-Dominated System,” published in the BAFFI Centre Working Paper Series. Francesco Decarolis also holds the ENEL Foundation Chair in Competitiveness & Transition.
According to Francesco Decarolis, it makes no sense to address volatility with emergency measures; it must be governed. In other words, we cannot “calm” the market every time prices fluctuate; we need to design rules that absorb that volatility.