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Vulnerability of European electricity markets: A quantile connectedness approach

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  • Chuliá, Helena
  • Klein, Tony
  • Muñoz Mendoza, Jorge A.
  • Uribe, Jorge M.

Abstract

The most recent dramatic increases in European Gas and Electricity prices demonstrate how vulnerable Europe is to energy supply shocks. We investigate the transmission of shocks from natural gas prices to local electricity prices in 21 European electricity markets. Using a quantile connectedness model, we find that the vulnerability of electricity markets in Europe varies both over time and across quantiles. Natural gas price shocks have a significant and nearly symmetrical impact on extreme quantiles of electricity prices. However, for moderate price changes, there is a disconnection between electricity and natural gas markets. We also identify the European countries that are most and least vulnerable to shocks in natural gas prices, which is due to differing energy mixes for electricity production. This novel vulnerability index has implications for the development of country-specific regulations and energy policies aimed at reducing the reliance on natural gas in European economies, combating energy poverty, and promoting the growth of renewable energy sources.

Suggested Citation

  • Chuliá, Helena & Klein, Tony & Muñoz Mendoza, Jorge A. & Uribe, Jorge M., 2024. "Vulnerability of European electricity markets: A quantile connectedness approach," Energy Policy, Elsevier, vol. 184(C).
    • Handle: RePEc:eee:enepol:v:184:y:2024:i:c:s0301421523004470
    DOI: 10.1016/j.enpol.2023.113862
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    Cited by:

    1. Zhao, Wanli & Zhai, Xiangyang & Ji, Qiang & Liu, Zhenhua, 2024. "Measuring crisis from climate risk spillovers in European electricity markets," Energy Economics, Elsevier, vol. 134(C).

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    More about this item

    Keywords

    Energy prices; Energy poverty; Markets distress; Market vulnerability; Spillovers;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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