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Chasing the Sun and Catching the Wind: Energy Transition and Electricity Prices in Europe
Author:
Mr. Serhan Cevik
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https://orcid.org/0000-0002-2373-2023
and
Keitaro Ninomiya
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 220
Language:
English
Publication Date:
04 Nov 2022
DOI:
https://doi.org/10.5089/9798400224362.001
ISBN:
9798400224362
ISSN:
1018-5941
Pages:
22
Keywords:
Energy transition; renewables; electiricity prices; panel quantile regression; Europe; electricity price; quantile estimation result; electricity generation; dampening effect; Electricity; Renewable energy; Renewable resources; Oil prices; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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European power markets are in the midst of unprecedented changes, with a record-breaking surge in energy prices.This paper investigates the impact of green power resources 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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund