Modeling European electricity market integration during turbulent times

Francesco Ravazzolo, Luca Rossini and Andrea Viselli

No 376266, FEEM Working Papers from Fondazione Eni Enrico Mattei (FEEM)

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: Environmental Economics and Policy; Resource/Energy Economics and Policy; Sustainability (search for similar items in EconPapers)
Pages: 37
Date: 2025-11-12
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemwp:376266

DOI: 10.22004/ag.econ.376266

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