Modeling European electricity market integration during turbulent times

Francesco Ravazzolo, Luca Rossini and Andrea Viselli
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Francesco Ravazzolo: BI Norwegian Business School, Free-University of Bozen-Bolzano and RCEA
Luca Rossini: University of Milan and Fondazione Eni Enrico Mattei
Andrea Viselli: University of Milan

No 2025.25, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper introduces a novel Bayesian reverse unrestricted mixed-frequency model applied to a panel of nine European electricity markets. Our model analyzes the impact of daily fossil fuel prices and hourly renewable energy generation on hourly electricity prices, employing a hierarchical structure to capture cross-country interdependencies and idiosyncratic factors. The inclusion of random effects demonstrates that electricity market integration both mitigates and amplifies shocks. Our results highlight that while renewable energy sources consistently reduce electricity prices across all countries, gas prices remain a dominant driver of cross-country electricity price disparities and instability. This finding underscores the critical importance of energy diversification, above all on renewable energy sources, and coordinated fossil fuel supply strategies for bolstering European energy security.

Keywords: Dynamic panel model; Mixed-frequency; Bayesian time series; Electricity Prices; Renewable energy sources; Market Integration (search for similar items in EconPapers)
JEL-codes: C11 C32 C33 C55 Q40 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-eec, nep-env and nep-eur
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2025.25

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