Price Asymmetries in Times of War: Natural Gas and Wholesale Electricity in the Italian Day-Ahead Market Following the Russian Invasion of Ukraine

The 2022 energy crisis, triggered by the Russian invasion of Ukraine, made the price of natural gas both higher and far more volatile. Because natural gas is the fuel that most often determines the wholesale price of electricity in Italy, this thesis uses the crisis to test whether the offers submitted by producers on the Italian day-ahead market followed a rockets and feathers pattern, responding faster or more strongly to increases in the gas price than to decreases. The analysis used bid-level data published by the Italian market operator (GME) for the North and South zones between January and August 2022, matched with the daily gas price at the Italian virtual trading point (PSV). Responses to increases and decreases were estimated separately in a distributed lag model, with standard errors clustered by plant and by date, for all plants and for groups of plants defined by generation technology. Gas-fired plants showed an asymmetric response: increases in the gas price were passed on within the day, while decreases only after about 2 days. However, over 5 days the total pass-through was the same in both directions and consistent with the fuel cost implied by the heat rate of a gas-fired unit. Renewable plants, which burn no gas, surprisingly also followed the gas price, but symmetrically.