Chasing the Sun and Catching the Wind: Energy Transition and Electricity Prices in Europe
IMF Working Papers, November 4, 2022
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- Chasing the Sun and Catching the Wind: Energy Transition and Electricity Prices in Europe
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Bibliographic details
- Authors: Serhan Cevik, Keitaro Ninomiya
- Published: November 4, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400224362.001
Overview
- European power markets experienced a record-breaking surge in energy prices.
- The paper investigates the impact of green power resources on the level and volatility of wholesale electricity prices.
- Sample and period: monthly observations for a panel of 24 European countries over the period 2014–2021.
- Methods: alternative estimation methods including a panel quantile regression approach.
Key findings
- Renewable energy is associated with a significant reduction in wholesale electricity prices in Europe.
- Quantified effect: an average impact of 0.6 percent for each 1 percentage points increase in renewable share.
- Evidence for a nonlinear effect: higher the share of renewables, the greater its effect on electricity prices.
- Volatility results: quantile estimation results are mixed regarding the impact of renewables on the volatility of electricity prices.
- At the highest quantiles, evidence indicates that renewable energy has a negative effect on volatility.
Policy implications and conclusions
- Policy reforms can help accelerate the green transition while minimizing the volatility in electricity prices.
- The nonlinear and quantile-specific effects suggest targeted policy design to maximize price-dampening benefits of renewables and reduce extreme-price volatility.
Data and methods (concise)
- Data frequency: monthly.
- Cross-section: panel of 24 European countries.
- Sample period: 2014–2021.
- Estimation approaches: alternative methods including panel quantile regression.
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- Working Paper