The electricity prices in the European Union. The role of renewable energies and regulatory electric market reforms

The European Union electricity market has been gradually liberalized since 1990s. Theoretically, competitive markets should lead to efficiency gains in the economy thus reducing electricity prices. However, there is a controversial debate about the real effects of the electricity liberalization on electricity prices. Moreover, the increased generation of electricity from renewable energies RES-E (Electricity from Renewable Energy Sources) is also integrated in wholesale market reducing wholesale prices, but the final effect over household prices is not clear.In order to contribute to this debate, this paper provides an empirical investigation into the electricity prices determinants. In fact we develop econometric panel models to explore the relationship between the household electricity prices and variables related to the renewable energy sources and the competition in generation electricity market. More specifically we use a panel data set provided by Eurostat and covering 27 European Union countries during the period 1998–2009.Our results suggest that electricity prices increase with the deployment of RES-E and with the expansion of greenhouse gas emissions produced by energy industries- as a European Union CO2 emission trading scheme exists.Results also reveal that country's characteristics can affect household electricity prices.

► Electricity liberalized markets should lead to reduce electricity prices.
► The use of renewable energies (RES) reduce wholesale electricity prices.
► However, household electricity prices are increasing in European Union.
► Panel data models are developed to investigate the effect of RES and electricity competition on household electricity prices.
► We find that the deployment of RES increases prices paid by consumers in a liberalized market.