Unraveling European electricity price volatility: The impact of renewables

The transition from fossil fuels to renewable, carbon-free energy is a critical challenge for mitigating climate change, with different European countries adopting diverse approaches to integrating renewable energy sources into their energy systems. Hereby, the intermittent nature and variability of renewable energy generation lead to significant challenges to electricity markets, amplifying supply volatility and market instability. This study examines the determinants of electricity price volatility in European wholesale markets, focusing on the impact of renewable energy sources as well as the influence of fuel prices and electricity demand. Using daily data from thirteen European electricity markets for the period 2015 to 2023, we account for the dynamic development of the energy system and volatile market condition, including the recent shocks induced by the Russia–Ukraine war. By employing country-specific and panel regression models, the findings reveal that conventional power sources, such as nuclear and coal, tend to stabilize electricity markets. In contrast, a higher share of solar power is associated with increased risk. Wind power exhibits mixed effects, with stabilizing impacts in most markets and volatility-enhancing tendencies in Spain, highlighting the role of market-specific dynamics. Additionally, total electricity load as well as the Russia-Ukraine war emerge as significant drivers of market risk. • Determinants of electricity price volatility in European electricity markets. • Nuclear and coal tend to stabilize electricity markets. • A higher share of solar power increases price volatility. • Total electricity load and Russia–Ukraine war drive market risks. • Panel and country regressions reveal market-specific dynamics.