Renewables, an antidote against volatile electricity prices for the EU

“Renewable energy growth also plays a direct role in mitigating and diminishing the negative impact of uncertain global fossil fuel prices and exchange-rate risks.” That is one of the main conclusions of the Energy Prices and Costs in Europe report published by the European Commission, in which the authors point out several responses to address increasingly volatile electricity prices.

The authors of the report stated renewables generally lower prices on the spot market and noted the market in the European Union is still dominated by coal and gas. “These prices usually set the marginal price and are responsible, for instance, for the price rise since the summer of 2016,” the report states.

The report also notes the upward trend for network charges and fees for power consumers – which in the EU represent around 40% of power prices – has stopped, and puts this partly down to the “falling unit costs of renewable energy investments, which reduced the revenues needed to invest”.

Storage will help reduce volatility

The authors of the paper stated the volatility of oil and gas prices – which are on an upward trend since 2016 – is having an indirect impact on power prices in EU member states, which have a “buyer-dependent” position as net importers of fossil fuels. “EU policy responses to protect itself against such forces include improving the functioning of the internal market and decarbonizing the European economy,” they explained.

The study also predicts storage and demand-side management, along with an improved European electricity market and expected fall in the cost of renewables, will help further reduce price volatility, while also providing the financial resources to cover the investment costs of all or most new capacity in the coming decade.

In November, the European Parliament approved the eight proposals of its Clean Energy Package 2020-2030 – the Winter Package. The proposals include a recasting of the Renewable Energy Directive, to bring regulatory certainty and provide the conditions for essential investment in the renewable energy sector. The policy package also sets a new 32% renewable energy target.