Are EU Climate and Energy Package 20-20-20 targets achievable and compatible? Evidence from the impact of renewables on electricity prices

TL;DR

This study evaluates the feasibility and consistency of the EU's 2020 climate and energy targets by analyzing how renewable energy impacts electricity prices across ten countries, revealing complex effects on wholesale and retail prices.

Contribution

It provides empirical evidence on the effects of renewables on electricity prices and examines the compatibility of renewable expansion with consumption reduction goals.

Findings

Renewables decrease wholesale electricity prices in all studied countries.

Decreases in wholesale prices do not always lead to lower household retail prices.

Impact of renewables on retail prices varies across countries.

Abstract

This paper studies the realizability and compatibility of the three CEP2020 targets, focusing on electricity prices. We study the impact of renewables and other fundamental determinants on wholesale and household retail electricity prices in ten EU countries from 2008 to 2016. Increases in production from renewables decrease wholesale electricity prices in all countries. As decreases in prices should promote consumption, an apparent contradiction emerges between the target of an increase in renewables and the target of a reduction in consumption. However, the impact of renewables on the non-energy part of household wholesale electricity prices is positive in six countries. Therefore, decreases in wholesale prices, that may compromise the CEP2020 target of decrease in consumption, do not necessarily translate into lower household retail prices.