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Modeling European Electricity Market Integration during turbulent times

Author

Listed:
  • Francesco Ravazzolo

    (Norwegian Business School, Norway; Free-University of Bozen-Bolzano, Italy; Rimini Centre for Economic Analysis)

  • Luca Rossini

    (University of Milan, Italy; Fondazione Eni Enrico Mattei, Italy)

  • Andrea Viselli

    (University of Milan, Italy)

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," Working Paper series 25-06, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:25-06
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    File URL: http://rcea.org/RePEc/pdf/wp25-06.pdf
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    More about this item

    Keywords

    Dynamic panel model; Mixed-frequency; Bayesian time series; Electricity Prices; Renewable energy sources; Market Integration;
    All these keywords.

    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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