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Evaluation of the impact of the war in Ukraine and of the measures taken to mitigate it on European and Belgian electricity prices

Ceyssens, Louis
(2024)

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Details

Supervisors
Aust, Ina
Faculty
Louvain School of Management
Degree label
Master [120] en sciences de gestion, à finalité spécialisée
Abstract
The large-scale invasion of Ukraine in February 2022 has caused major disruption to the European energy sector, and particularly to the European electricity market. The aim of this thesis is to evaluate the impact of the war and of the measures taken to mitigate it on European and Belgian electricity prices. The study employs a dual quantitative research approach, combining explanatory and evaluative methods. The investigation begins by examining the mechanism and variable through which these events have had an impact on power prices. Subsequently, the extent to which electricity prices have been influenced by the occurrence of the war and the implementation of mitigation measures is evaluated. The explanatory research reveals a strong linear relationship between gas and electricity prices, with the former being a significant driver of the latter due to the Merit Order principle. The link is evident for both the EU27 and Belgium, given the importance of the primary energy resource in their respective electricity production mixes. It is therefore clear that this relationship represents the primary mechanism through which electricity prices have been influenced these last years. The evaluative research highlights the sharp increase in gas prices and electricity prices in 2021 and 2022. This initial rise was triggered by the post-Covid economic recovery, but the situation was then significantly worsened by the war in Ukraine. Since reaching a zenith in August 2022, European mitigation measures managed to have a considerable influence on gas prices, which subsequently resulted in a reduction in electricity prices for both zones. However, prices remain slightly above pre-crisis levels, indicating the need for continued efforts and long-term measures to achieve stability.