Skip to main content

Advertisement

SpringerLink
Log in

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

  • Published:
Journal of Economics and Finance Aims and scope Submit manuscript

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Data availability

The data that support the findings of this study are available at Eurostat and the European Association for the Cooperation of Transmission System Operators (ENTSO-E).

Notes

  1. Energy production is responsible for nearly three-quarters of global greenhouse gas emissions, with about half of these emissions coming from electricity generation alone.

  2. Higher wholesale electricity prices have put upward pressure on retail prices paid by households and commercial entities. The European Union has agreed on a package of energy emergency measures amounting to €376 billion to compensate consumers for the increase in electricity prices.

  3. The countries included in our sample are Austria, Belgium, Bulgaria, Croatia, the Czech Republic, Denmark, Estonia, Germany, Finland, France, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, the Netherlands, Norway, Poland, Portugal, Romania, Serbia, Slovenia, the Slovak Republic, Spain, Sweden, Switzerland and the United Kingdom.

  4. As alternative, we include total electricity generating capacity (instead of total electricity load) and obtain similar results.

  5. The choice of control variables is dictated by data availability for a balanced panel at monthly frequency.

References

  • Prol J, Steininger K, Zilberman D (2020) The Cannibalization Effect of Wind and Solar in the California Wholesale Electricity Market. Energy Econ 85:104552

  • Würzburg K, Labandeira X, Linares P (2013) Renewable Generation and Electricity Prices: Taking Stock and New Evidence for Germany and Austria. Energy Econ 40:S159–S171

    Article  Google Scholar 

  • Angrist J, Pischke J (2009) Mostly harmless econometrics: An empiricist’s companion. Princeton University Press, Princeton, NJ

  • Ballester C, Furió D (2015) Effects of Renewables on the Stylized Facts of Electricity Prices. Renew Sustain Energy Rev 52:1596–1609

    Article  Google Scholar 

  • Canay I (2011) A Simple Approach to Quantile Regression for Panel Data. Econ J 14:368–386

    Google Scholar 

  • Cevik S (2022) Climate Change and Energy Security: The Dilemma or Opportunity of the Century? IMF Working Paper No. 22/174. International Monetary Fund, Washington, DC

  • Clò S, Cataldi A, Zoppoli P (2015) The Merit-Order Effect in the Italian Power Market: The Impact of Solar and Wind Generation on National Wholesale Electricity Prices. Energy Policy 77:79–88

    Article  Google Scholar 

  • Cludius J, Hermann H, Matthes F, Graichen V (2014) The Merit-Order Effect of Wind and Photovoltaic Electricity Generation in Germany 2008–2016: Estimation and Distributional Implications. Energy Econ 44:302–313

    Article  Google Scholar 

  • Csereklyei Z, Qu S, Ancev T (2019) The Effect of Wind and Solar Power Generation on Wholesale Electricity Prices in Australia. Energy Policy 131:358–369

    Article  Google Scholar 

  • de Lagarde C, Lantz F (2019) How Renewable Production Depresses Electricity Prices: Evidence from the German Market. Energy Policy 117:263–277

    Article  Google Scholar 

  • Gelabert L, Labandeira X, Linares P (2011) An Ex-Post Analysis of the Effect of Renewables and Cogeneration on Spanish Electricity Prices. Energy Econ 33:S59–S65

    Article  Google Scholar 

  • Green R, Vasilakos N (2010) Market Behaviour with Large Amounts of Intermittent Generation. Energy Policy 38:3211–3220

    Article  Google Scholar 

  • Gullì F, Balbo A (2015) The Impact of Intermittently Renewable Energy on Italian Wholesale Electricity Prices: Additional Benefits or Additional Costs? Energy Policy 83:123–137

    Article  Google Scholar 

  • Hsiao C, Mountain D, Ho-Illman K (1995) Bayesian Integration of End-Use Metering and Conditional Demand Analysis. J Bus Econ Stat 13:315–326

    Google Scholar 

  • Im K, Pesaran M, Shin Y (2003) Testing for Unit Roots in Heterogeneous Panels. J Econ 115:53–74

    Article  Google Scholar 

  • Intergovernmental Panel on Climate Change (IPCC) (2007) Fourth Assessment Report, Intergovernmental Panel on Climate Change. Cambridge University Press, New York

    Google Scholar 

  • Intergovernmental Panel on Climate Change (IPCC) (2014) Climate Change in 2014: Mitigation of Climate Change. Working Group III Contribution to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, New York

    Google Scholar 

  • Intergovernmental Panel on Climate Change (IPCC) (2019) IPCC Special Report on the Ocean and Cryosphere in a Changing Climate. In: Pörtner H-O, Roberts D, Masson-Delmotte V, Zhai P, Tignor M, Poloczanska E, Mintenbeck K, Alegría A, Nicolai M, Okem A, Petzold J, Rama B, Weyer N (eds.). Cambridge University Press, New York

  • Intergovernmental Panel on Climate Change (IPCC) (2021) In: Masson-Delmotte V, Zhai P, Pirani A, Connors SL, Péan C, Berger S, Caud N, Chen Y, Goldfarb L, Gomis MI, Huang M, Leitzell K, Lonnoy E, Matthews JBR, Maycock TK, Waterfield T, Yelekçi O,. Yu O, Zhou B (eds.) Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, New York. In Press

  • Ketterer J (2014) The Impact of Wind Power Generation on the Electricity Price in Germany. Energy Econ 44:270–280

    Article  Google Scholar 

  • Koenker R, Bassett G (1978) Regression Quantiles. Econometrica 46:33–50

    Article  Google Scholar 

  • Kyritsis E, Andersson J, Serletis A (2017) Electricity Prices, Large-Scale Renewable Integration, and Policy Implications. Energy Policy 101:550–560

    Article  Google Scholar 

  • Maciejowska K (2020) Assessing the Impact of Renewable Energy Sources on the Electricity Price Level and Variability – A Quantile Regression Approach. Energy Econ 85:104532

  • Martinez-Anido C, Brinkman G, Hodge B-M (2016) The Impact of Wind Power on Electricity Prices. Renew Energy 94:474–487

    Article  Google Scholar 

  • Rintamäki T, Siddiqui A, Salo A (2017) Does Renewable Energy Generation Decrease the Volatility of Electricity Prices? An Analysis of Denmark and Germany. Energy Econ 62:270–282

    Article  Google Scholar 

  • Sapio A (2019) Greener, More Integrated, and Less Volatile? A Quantile Regression Analysis of Italian Wholesale Electricity Prices. Energy Econ 126:452–469

    Google Scholar 

  • Sensfuß F, Ragwitz M, Genoese M (2008) The Merit-Order Effect: A Detailed Analysis of the Price Effect of Renewable Electricity Generation on Spot Market Prices in Germany. Energy Policy 36:3086–3094

    Article  Google Scholar 

  • Woo C-K, Horowitz I, Moore J, Pacheco A (2011) The Impact of Wind Generation on the Electricity Spot-Market Price Level and Variance: The Texas Experience. Energy Policy 39:3939–3944

    Article  Google Scholar 

Download references

Acknowledgements

The authors would like to thank the editor, John Elder, and anonymous referees for helpful comments and suggestions that led to marked improvements in the paper. An earlier version of this article benefited from comments by Christian Bogmans, Borja Gracia, Andrea Pescatori, Axel Schimmelpfennig, Baoping Shang, Andrew Stanley, Zhongxia Zhang, and the participants of a seminar at the European Department of the International Monetary Fund (IMF). The views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Author information

Authors and Affiliations

  1. International Monetary Fund, 700 19Th Street, Washington, DC, 20431, USA

    Serhan Cevik

  2. University of Illinois, Urbana, IL, 61801, USA

    Keitaro Ninomiya

Authors
  1. Serhan Cevik
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Keitaro Ninomiya
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Serhan Cevik.

Ethics declarations

Conflict of interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Additional information

Publisher's note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendix A

Appendix A

Tables

Table 6 Renewable Technologies and Electricity Prices: OLS Estimations
Full size table

6,

Table 7 Solar Power and Electricity Prices: Quantile Estimations
Full size table

7,

Table 8 Wind Power and Electricity Prices: Quantile Estimations
Full size table

8,

Table 9 Solar Power and Electricity Price Volatility: Quantile Estimations
Full size table

9,

Table 10 Wind Power and Electricity Price Volatility: Quantile Estimations
Full size table

10

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Cevik, S., Ninomiya, K. Chasing the sun and catching the wind: Energy transition and electricity prices in Europe. J Econ Finan 47, 912–935 (2023). https://doi.org/10.1007/s12197-023-09626-x

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12197-023-09626-x

Keywords

JEL Classification

Search

Navigation