Electricity Prices Dynamics under Geopolitical Shocks: Strengthening Resilience on the Path to Decarbonization

This article examines the determinants of wholesale electricity prices in a context of significant instability, with a particular focus on the energy crisis triggered by the Russia-Ukraine war. It highlights how national generation mixes can shape the resilience of electricity prices, both in terms of level and volatility, when confronted with exogenous shocks. Drawing on daily data for France and Germany from 2016 to 2024, the analysis explores both structural and dynamic relationships between electricity prices, fuel costs, carbon markets, and power generation patterns. Results show that gas prices remain the dominant driver of electricity price volatility, while coal and carbon costs exhibit heterogeneous effects depending on the period and the national mix. Renewable energy is associated with a downward effect, especially in Germany, while nuclear availability plays a central role in France. Cross-border flows emerge as an additional adjustment channel, amplifying price pressures in France when reliant on imports, while mitigating them in Germany through French exports. These findings confirm the empirical relevance of the merit-order mechanism and how contrasting decarbonization pathways affect national vulnerabilities to energy shocks, underscoring the need for flexible, diversified, and well-integrated power systems to ensure both affordability and security of supply in the European energy transition.