Assessing energy security risks: Implications for household electricity prices in the EU

Energy security has emerged as a critical issue, especially for Europe, driven by escalating geopolitical tensions and the transition toward sustainable energy sources. Beyond affecting national energy supply, energy security also significantly influences the affordability of electricity for consumers. We examine the impact of energy security on household electricity prices, focusing on three key indicators: energy dependency, energy diversity, and geopolitical risk. Using panel data of 27 EU countries from 2007 to 2022, the analysis reveals that both energy diversity and dependency contribute to lowering electricity prices, while geopolitical risk shows no significant direct effect. However, the interaction between energy dependency and geopolitical risk reveals that during times of heightened geopolitical risks, a heavy reliance on foreign energy can lead to significantly higher electricity prices. Further 2SLS estimation and additional analysis with extended controls confirm the robustness of these findings. These findings offer valuable insights for policymakers focused on enhancing energy security.