High electricity price despite expansion in renewables: How market trends shape Germany’s power market in the coming years

Expectations about future energy prices are crucial for investment decisions, market reform debates, and public policy. Yet, the recent energy crisis caused dramatic market uncertainty. This study investigates Germany’s near-future wholesale electricity price in the context of evolving market trends. A flexible econometric model is applied to high-frequency, near-time data, spanning January 2015 through May 2023. A potential endogeneity bias of trade is circumvented by an instrumental-variables approach. Results indicate that expanding renewable energy exerts downward pressure on price, countering trends like the nuclear phaseout, a rising carbon price, increased electrification, and a high gas price. The collective impact suggests a considerably higher electricity price in the coming years compared to pre-crisis levels. This finding is corroborated by a fundamental energy system model. The potential rise in renewables’ production volatility may amplify electricity price volatility. A high and volatile near-future electricity price could spur investments in renewables and flexibility technologies but pose challenges for consumers. Our analysis aids evidence-based decision-making amid the post-crisis landscape.