Decarbonization and electricity price vulnerability

Driven by the need to reduce emissions and transition to sustainable electricity systems, many European countries have substantially increased their share of carbon-free electricity over recent decades. However, the dramatic 2021–2022 surge in natural gas prices—stemming from geopolitical tensions and supply constraints—has sharply elevated electricity prices, highlighting the continued vulnerability of electricity markets to natural gas price shocks and suggesting a persistent dependency on volatile fossil fuel prices. Here we develop a country-specific vulnerability metric and apply it to estimate how natural gas price shocks are transmitted to electricity prices across European markets. We find that countries that pursued more aggressive electricity decarbonization are not more vulnerable to natural gas price shocks. However, countries with a higher share of intermittent renewable energy generation (wind and solar) are slightly more vulnerable, potentially due to the complementarity of these technologies with natural gas generation. We show that heterogeneity in vulnerability implies that country-specific policies would be needed to avoid extreme electricity prices, in contrast to the existing uniform EU price cap. Our results emphasize that decarbonization goals can still be achieved without risking vulnerability, which is critical for maintaining stable electricity prices, energy security and public trust in the energy transition.