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Modeling European Electricity Market Integration during turbulent times

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  • Francesco Ravazzolo
  • Luca Rossini
  • Andrea Viselli

Abstract

This paper introduces a novel Bayesian reverse unrestricted mixed-frequency model applied to a panel of nine European electricity markets. Our model analyzes the impact of daily fossil fuel prices and hourly renewable energy generation on hourly electricity prices, employing a hierarchical structure to capture cross-country interdependencies and idiosyncratic factors. The inclusion of random effects demonstrates that electricity market integration both mitigates and amplifies shocks. Our results highlight that while renewable energy sources consistently reduce electricity prices across all countries, gas prices remain a dominant driver of cross-country electricity price disparities and instability. This finding underscores the critical importance of energy diversification, above all on renewable energy sources, and coordinated fossil fuel supply strategies for bolstering European energy security.

Suggested Citation

  • Francesco Ravazzolo & Luca Rossini & Andrea Viselli, 2025. "Modeling European Electricity Market Integration during turbulent times," Papers 2506.23289, arXiv.org.
    • Handle: RePEc:arx:papers:2506.23289
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    File URL: http://arxiv.org/pdf/2506.23289
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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