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Chasing the sun and catching the wind: Energy transition and electricity prices in Europe

Author

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  • Serhan Cevik

    (International Monetary Fund)

  • Keitaro Ninomiya

    (University of Illinois)

Abstract

European power markets are in the midst of unprecedented changes, with a record-breaking surge in energy prices. This paper investigates the impact of the green transition on the level and volatility of wholesale electricity prices at a granular level, using monthly observations for a panel of 24 European countries over the period 2014–2021 and alternative estimation methods including a panel quantile regression approach. We find that renewable energy is associated with a significant reduction in wholesale electricity prices in Europe, with an average impact of 0.6 percent for each 1 percentage points increase in renewable share. We also find evidence for a nonlinear effect—that is, higher the share of renewables, the greater its effect on electricity prices. On the other hand, while quantile estimation results are mixed with regards to the impact of renewables on the volatility of electricity prices, we obtain evidence that renewable energy has a negative effect on volatility at the highest quantiles. Overall, our analysis indicates that policy reforms can help accelerate the green transition while minimizing the volatility in electricity prices.

Suggested Citation

  • Serhan Cevik & Keitaro Ninomiya, 2023. "Chasing the sun and catching the wind: Energy transition and electricity prices in Europe," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(4), pages 912-935, December.
    • Handle: RePEc:spr:jecfin:v:47:y:2023:i:4:d:10.1007_s12197-023-09626-x
    DOI: 10.1007/s12197-023-09626-x
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    Cited by:

    1. Torsten Clemens & Andreas Lunzer & Martin Hunyadi-Gall & Pablo Gil, 2025. "Agrivoltaics, Opportunities for Hydrogen Generation, and Market Developments," Energies, MDPI, vol. 18(4), pages 1-26, February.
    2. Balázs Herczeg & Éva Pintér, 2024. "The Nexus between Wholesale Electricity Prices and the Share of Electricity Production from Renewables: An Analysis with and without the Impact of Time of Distress," Energies, MDPI, vol. 17(4), pages 1-25, February.

    More about this item

    Keywords

    Energy transition; Renewables; Electiricity prices; Panel quantile regression; Europe;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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