Abstract
The energy crisis and soaring electricity prices in Europe have led a number of observers and policy makers to question the current market model based on marginal costs. Among the many reform proposals that have been put forward, two in particular have attracted attention: 1) capping gas prices for power generation in the short term (the Spanish option); or 2) introducing a dual market model in the medium term, combining a merit order based on marginal costs for fossil fuels with high variable costs, and long-term contracts based on average costs for low-carbon producers with high fixed costs (the Greek option). The debate is all the more intense because rising energy costs are the main driver of inflation in Europe, which reached more than 10% year-on-year in October 2022. This situation is weighing on the competitiveness of the euro zone vis-à-vis its main trading partners, which are often less severely affected by the energy crisis.