Powering Energy Security: Unleashing Renewables for Resilience in a World of Uncertainty

This article investigates the determinants of electricity prices in a context of great instability, illustrated in our case by the Russia-Ukraine war. European countries have different electricity production mixes, which can have various effects on their spot electricity prices. In addition to the commodity price increases potentially caused by shocks, an additional carbon cost for the electricity sector may be generated due to disruptions, forcing reliance on fossil fuels. To focus on the effects of different production sources on electricity prices, an empirical study is conducted to compare these dynamics in France and Germany. The study period runs from 2016 to 2024, using price and production time series. Multiple linear regression models are used to assess the relationships between electricity price, gas price, and generation mix. A breakpoint test is applied to determine a structural change in the electricity price time series at the time of the energy crisis of 2022 to compare these dynamics before and after the crisis. This study contributes to understanding the dynamics of electricity prices in markets that undergo shocks and uncertainty. The results demonstrate the role of gas prices as a key driver of electricity price volatility in both countries. The merit order mechanisms are empirically confirmed, highlighting the increasing effect of fossil generation on electricity prices, the stabilizing effect of nuclear power, and the downward effect of renewables over the period studied. This contribution confront two different decarbonization trajectories and their potential resilience in a world of growing instability and uncertainty.