The relationship between renewable energy and retail electricity prices: Panel evidence from OECD countries

Working paper 797
Author(s): 
A.M. Oosthuizen, R. Inglesi-Lotz and G.A. Thopil
Publication date: 
September, 2019

The centrality of electricity to everyday life is indisputable, and the price thereof can have significant implications. Literature is inconclusive over the effect of the renewable energy share in the energy mix on retail electricity price as country-specific regulatory policy has a significant impact on retail electricity prices. The purpose of this paper is to determine the effect of the increasing renewable electricity share on retail electricity prices for 34-OECD countries, considering the change in market structure for 23 EU countries. The results show that the influence of the renewable energy share in the energy mix to retail electricity prices is positive and statistically significant. Increasing renewable sources is inescapable in reaching SDG7, while increased awareness of true price signals should prompt private investment while phasing out support schemes in the long run. A sound regulatory framework is required to account for renewable intermittency as well as effective supply and demand matching. The positive impact on electricity prices should not deter policymakers from promoting renewable energy as the effect is marginal and is expected to decline in coming years, improving energy security. The benefits of employing renewables far outweigh the environmental cost.

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