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Renewable Energy Supply Shocks from Wind Electricity

Author

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  • Paula Patzelt

Abstract

This paper identifies electricity supply shocks by exploiting the fact that variations in wind speed at turbine locations are exogenous with respect to macroeconomic outcomes and drive electricity prices in European wholesale markets inframarginally. Instrumenting electricity price changes with these wind supply shocks, I find that higher electricity prices raise inflation and reduce electricity use as expected, but generate surprising effects on economic activity. Unemployment rises, but industrial production also rises over time, and the effect on GDP is negligible. As these effects differ markedly from the impact of oil price shocks, they suggest that as economies shift from fossil fuels to renewable electricity, business cycle dynamics may persistently change.

Suggested Citation

  • Paula Patzelt, 2025. "Renewable Energy Supply Shocks from Wind Electricity," CESifo Working Paper Series 12146, CESifo.
    • Handle: RePEc:ces:ceswps:_12146
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp12146.pdf
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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