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IMF Working Paper

European Department

Chasing the Sun and Catching the Wind: Energy Transition and Electricity Prices in Europe

Prepared by Serhan Cevik and Keitaro Ninomiya1

Authorized for distribution by Bernardin Akitoby

November 2022

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.


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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The authors would like to thank 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) for helpful comments and suggestions, and Sadhna Naik for excellent research assistance.

Chasing the Sun and Catching the Wind: Energy Transition and Electricity Prices in Europe
Author: Mr. Serhan Cevik and Keitaro Ninomiya