IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v137y2024ics0140988324004973.html
   My bibliography  Save this article

Weather conditions, climate change, and the price of electricity

Author

Listed:
  • Mosquera-López, Stephania
  • Uribe, Jorge M.
  • Joaqui-Barandica, Orlando

Abstract

We estimate the effect of temperature, wind speed, solar radiation, and precipitation on wholesale electricity prices for six European countries, analyzing the full distribution of the weather variables. We provide evidence on nonlinear and extreme weather effects on electricity prices. In all countries, reductions in temperature below a certain threshold increase electricity prices, yet these thresholds tend to be lower for colder countries than for warmer ones. In addition, warmer countries have an upper threshold above which temperatures also increase prices. The precipitation threshold is near the maximum for countries with limited hydroelectric generation and much lower for others with high hydropower capacity, such as Norway. Wind speed has a similar effect on electricity prices across countries, while irradiance has a statistically significant effect in countries with the highest solar capacity and higher average irradiance. Ultimately, the impact of weather conditions on electricity prices is influenced by a country's initial climatic conditions, generation mix, policies, energy efficiency levels, and behavioral factors. Policies aimed at reducing the disproportionately negative impacts of climate change on vulnerable populations should ideally be informed by accurate quantification of the impact of weather on electricity prices.

Suggested Citation

  • Mosquera-López, Stephania & Uribe, Jorge M. & Joaqui-Barandica, Orlando, 2024. "Weather conditions, climate change, and the price of electricity," Energy Economics, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:eneeco:v:137:y:2024:i:c:s0140988324004973
    DOI: 10.1016/j.eneco.2024.107789
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988324004973
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2024.107789?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fabrizio Durante & Angelica Gianfreda & Francesco Ravazzolo & Luca Rossini, 2022. "A Multivariate Dependence Analysis for Electricity Prices, Demand and Renewable Energy Sources," Papers 2201.01132, arXiv.org.
    2. Angelica Gianfreda, Lucia Parisio, and Matteo Pelagatti, 2019. "The RES-Induced Switching Effect Across Fossil Fuels: An Analysis of Day-Ahead and Balancing Prices," The Energy Journal, International Association for Energy Economics, vol. 0(The New E).
    3. Vignesh Sridharan & Oliver Broad & Abhishek Shivakumar & Mark Howells & Brent Boehlert & David G. Groves & H-Holger Rogner & Constantinos Taliotis & James E. Neumann & Kenneth M. Strzepek & Robert Lem, 2019. "Resilience of the Eastern African electricity sector to climate driven changes in hydropower generation," Nature Communications, Nature, vol. 10(1), pages 1-9, December.
    4. Ludovic Gaudard & Manfred Gilli & Franco Romerio, 2013. "Climate Change Impacts on Hydropower Management," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(15), pages 5143-5156, December.
    5. Lu, Xin & Qiu, Jing & Lei, Gang & Zhu, Jianguo, 2022. "Scenarios modelling for forecasting day-ahead electricity prices: Case studies in Australia," Applied Energy, Elsevier, vol. 308(C).
    6. Jasiński, Tomasz, 2020. "Use of new variables based on air temperature for forecasting day-ahead spot electricity prices using deep neural networks: A new approach," Energy, Elsevier, vol. 213(C).
    7. Uribe Jorge M. & Chuliá Helena, 2023. "Expected, unexpected, good and bad aggregate uncertainty," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 27(2), pages 265-284, April.
    8. Bigerna, Simona, 2018. "Estimating temperature effects on the Italian electricity market," Energy Policy, Elsevier, vol. 118(C), pages 257-269.
    9. Gasparrini, Antonio, 2011. "Distributed Lag Linear and Non-Linear Models in R: The Package dlnm," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 43(i08).
    10. Zhang, Guoqiang & Guo, Jifeng, 2020. "A novel ensemble method for hourly residential electricity consumption forecasting by imaging time series," Energy, Elsevier, vol. 203(C).
    11. Miller, J. Isaac & Nam, Kyungsik, 2022. "Modeling peak electricity demand: A semiparametric approach using weather-driven cross-temperature response functions," Energy Economics, Elsevier, vol. 114(C).
    12. Maciejowska, Katarzyna & Nitka, Weronika & Weron, Tomasz, 2021. "Enhancing load, wind and solar generation for day-ahead forecasting of electricity prices," Energy Economics, Elsevier, vol. 99(C).
    13. Liddle, Brantley & Huntington, Hillard, 2021. "How prices, income, and weather shape household electricity demand in high-income and middle-income countries," Energy Economics, Elsevier, vol. 95(C).
    14. Gianfreda, Angelica & Grossi, Luigi, 2012. "Forecasting Italian electricity zonal prices with exogenous variables," Energy Economics, Elsevier, vol. 34(6), pages 2228-2239.
    15. Gianfreda, Angelica & Parisio, Lucia & Pelagatti, Matteo, 2018. "A review of balancing costs in Italy before and after RES introduction," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 549-563.
    16. Mosquera-López, Stephania & Uribe, Jorge M., 2022. "Pricing the risk due to weather conditions in small variable renewable energy projects," Applied Energy, Elsevier, vol. 322(C).
    17. Brown, Patrick R. & O'Sullivan, Francis M., 2020. "Spatial and temporal variation in the value of solar power across United States electricity markets," Renewable and Sustainable Energy Reviews, Elsevier, vol. 121(C).
    18. Eike Blume-Werry, Thomas Faber, Lion Hirth, Claus Huber, and Martin Everts, 2021. "Eyes on the Price: Which Power Generation Technologies Set the Market Price?," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    19. Feeny, Simon & Trinh, Trong-Anh & Zhu, Anna, 2021. "Temperature shocks and energy poverty: Findings from Vietnam," Energy Economics, Elsevier, vol. 99(C).
    20. Anton Orlov & Jana Sillmann & Ilaria Vigo, 2020. "Author Correction: Better seasonal forecasts for the renewable energy industry," Nature Energy, Nature, vol. 5(3), pages 271-271, March.
    21. Edward A. Byers & Gemma Coxon & Jim Freer & Jim W. Hall, 2020. "Drought and climate change impacts on cooling water shortages and electricity prices in Great Britain," Nature Communications, Nature, vol. 11(1), pages 1-12, December.
    22. Lee, Chien-Chiang & Yuan, Zihao & Lee, Chi-Chuan & Chang, Yu-Fang, 2022. "The impact of renewable energy technology innovation on energy poverty: Does climate risk matter?," Energy Economics, Elsevier, vol. 116(C).
    23. Gianfreda, Angelica & Parisio, Lucia & Pelagatti, Matteo, 2016. "Revisiting long-run relations in power markets with high RES penetration," Energy Policy, Elsevier, vol. 94(C), pages 432-445.
    24. Li, Xue & Smyth, Russell & Xin, Guangyi & Yao, Yao, 2023. "Warmer temperatures and energy poverty: Evidence from Chinese households," Energy Economics, Elsevier, vol. 120(C).
    25. Mosquera-López, Stephanía & Uribe, Jorge M. & Manotas-Duque, Diego Fernando, 2017. "Nonlinear empirical pricing in electricity markets using fundamental weather factors," Energy, Elsevier, vol. 139(C), pages 594-605.
    26. Lin, Jianing & Bao, Minglei & Liang, Ziyang & Sang, Maosheng & Ding, Yi, 2022. "Spatio-temporal evaluation of electricity price risk considering multiple uncertainties under extreme cold weather," Applied Energy, Elsevier, vol. 328(C).
    27. Uribe, Jorge M. & Mosquera-López, Stephania & Arenas, Oscar J., 2022. "Assessing the relationship between electricity and natural gas prices in European markets in times of distress," Energy Policy, Elsevier, vol. 166(C).
    28. Huurman, Christian & Ravazzolo, Francesco & Zhou, Chen, 2012. "The power of weather," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3793-3807.
    29. Anton Orlov & Jana Sillmann & Ilaria Vigo, 2020. "Better seasonal forecasts for the renewable energy industry," Nature Energy, Nature, vol. 5(2), pages 108-110, February.
    30. Atalla, Tarek N. & Hunt, Lester C., 2016. "Modelling residential electricity demand in the GCC countries," Energy Economics, Elsevier, vol. 59(C), pages 149-158.
    31. Mosquera-López, Stephanía & Uribe, Jorge M. & Manotas-Duque, Diego F., 2018. "Effect of stopping hydroelectric power generation on the dynamics of electricity prices: An event study approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 456-467.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marco Guerzoni & Luigi Riso & Maria Grazia Zoia, 2025. "Forecasting the Impact of Extreme Weather Events on Electricity Prices in Italy: A GARCH-MIDAS Approach with Enhanced Variable Selection," DISCE - Working Papers del Dipartimento di Politica Economica dipe0043, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Monika Zimmermann & Florian Ziel, 2024. "Spatial Weather, Socio-Economic and Political Risks in Probabilistic Load Forecasting," Papers 2408.00507, arXiv.org, revised Dec 2024.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Billé, Anna Gloria & Gianfreda, Angelica & Del Grosso, Filippo & Ravazzolo, Francesco, 2023. "Forecasting electricity prices with expert, linear, and nonlinear models," International Journal of Forecasting, Elsevier, vol. 39(2), pages 570-586.
    2. Gianfreda, Angelica & Ravazzolo, Francesco & Rossini, Luca, 2020. "Comparing the forecasting performances of linear models for electricity prices with high RES penetration," International Journal of Forecasting, Elsevier, vol. 36(3), pages 974-986.
    3. Mosquera-López, Stephanía & Uribe, Jorge M. & Manotas-Duque, Diego F., 2018. "Effect of stopping hydroelectric power generation on the dynamics of electricity prices: An event study approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 456-467.
    4. Gianfreda, Angelica & Maranzano, Paolo & Parisio, Lucia & Pelagatti, Matteo, 2023. "Testing for integration and cointegration when time series are observed with noise," Economic Modelling, Elsevier, vol. 125(C).
    5. Angelica Gianfreda & Francesco Ravazzolo & Luca Rossini, 2023. "Large Time‐Varying Volatility Models for Hourly Electricity Prices," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(3), pages 545-573, June.
    6. Zhang, Guoxing & Shen, Lin & Su, Bin, 2023. "Temperature change and daily urban-rural residential electricity consumption in northwestern China: Responsiveness and inequality," Energy Economics, Elsevier, vol. 126(C).
    7. Ding, Song & Cai, Zhijian & Qin, Xinghuan & Shen, Xingao, 2024. "Comparative assessment and policy analysis of forecasting quarterly renewable energy demand: Fresh evidence from an innovative seasonal approach with superior matching algorithms," Applied Energy, Elsevier, vol. 367(C).
    8. Li, Muyuan & Yao, Jinfeng & Shen, Yanbo & Yuan, Bin & Simmonds, Ian & Liu, Yunyun, 2023. "Impact of synoptic circulation patterns on renewable energy-related variables over China," Renewable Energy, Elsevier, vol. 215(C).
    9. Nowotarski, Jakub & Weron, Rafał, 2018. "Recent advances in electricity price forecasting: A review of probabilistic forecasting," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P1), pages 1548-1568.
    10. Moteng, Ghislain & Raghutla, Chandrashekar & Njangang, Henri & Nembot, Luc Ndeffo, 2023. "International sanctions and energy poverty in target developing countries," Energy Policy, Elsevier, vol. 179(C).
    11. Angelica, Gianfreda & Lucia, Parisio & Matteo, Pelagatti, 2017. "The RES-induced Switching Effect Across Fossil Fuels: An Analysis of the Italian Day-Ahead and Balancing Prices and Their Connected Costs," Working Papers 360, University of Milano-Bicocca, Department of Economics, revised 03 Feb 2017.
    12. Mosquera-López, Stephania & Uribe, Jorge M., 2022. "Pricing the risk due to weather conditions in small variable renewable energy projects," Applied Energy, Elsevier, vol. 322(C).
    13. Maket, Isaiah, 2024. "Rethinking energy poverty alleviation through financial inclusion: Do institutional quality and climate change risk matter?," Utilities Policy, Elsevier, vol. 91(C).
    14. Lei, Hongxuan & Liu, Pan & Cheng, Qian & Xu, Huan & Liu, Weibo & Zheng, Yalian & Chen, Xiangding & Zhou, Yong, 2024. "Frequency, duration, severity of energy drought and its propagation in hydro-wind-photovoltaic complementary systems," Renewable Energy, Elsevier, vol. 230(C).
    15. Silvia Golia & Luigi Grossi & Matteo Pelagatti, 2022. "Machine Learning Models and Intra-Daily Market Information for the Prediction of Italian Electricity Prices," Forecasting, MDPI, vol. 5(1), pages 1-21, December.
    16. Bigerna, Simona, 2018. "Estimating temperature effects on the Italian electricity market," Energy Policy, Elsevier, vol. 118(C), pages 257-269.
    17. Sapio, Alessandro & Spagnolo, Nicola, 2020. "The effect of a new power cable on energy prices volatility spillovers," Energy Policy, Elsevier, vol. 144(C).
    18. Zuin, Gianlucca & Buechler, Rob & Sun, Tao & Zanocco, Chad & Galuppo, Francisco & Veloso, Adriano & Rajagopal, Ram, 2023. "Extreme event counterfactual analysis of electricity consumption in Brazil: Historical impacts and future outlook under climate change," Energy, Elsevier, vol. 281(C).
    19. Uribe, Jorge M. & Mosquera-López, Stephania & Arenas, Oscar J., 2022. "Assessing the relationship between electricity and natural gas prices in European markets in times of distress," Energy Policy, Elsevier, vol. 166(C).
    20. Xiangdong Sun & Ziwen Cheng & Hongxu Shi & Jinhao Zhang, 2025. "Abnormal Temperature and Rural Energy Poverty: A Threshold Effect Analysis Based on the Urban–Rural Gap and the Quality of Rural Housing," Energies, MDPI, vol. 18(3), pages 1-23, January.

    More about this item

    Keywords

    Weather; Climate change; Electricity prices; Nonlinear effects;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:137:y:2024:i:c:s0140988324004973. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.