Energy Market Trends in the Light of Recent Events – Focus on Electricity

Abstract

The European Union's (EU) drive toward energy transition is underscored by vigorous initiatives that aim to increase reliance on renewables, address climate change, and support cleaner energy production. However, integrating renewables like wind and solar into the energy portfolio transforms market dynamics. The objective of this study is to assess the past decades trends in wholesale electricity price developments and renewable energies, review the wholesale electricity market and identify the key factors affecting electricity prices. The merit order mechanism in the EU's electricity markets, where electricity supply sources are dispatched based on ascending order of marginal costs, has been significantly impacted by the increasing share of low-marginal-cost renewable energy, potentially lowering wholesale electricity prices. Yet, the intermittent nature of renewables introduces volatility, necessitating flexible backup options, often provided by gas-fired plants, which in turn influences gas demand and pricing. The early 2020s, marked by a pandemic and warfare, have illustrated the profound effects that such crises can have on energy markets, underlining the interdependence of global energy systems and the EU's vulnerability concerning gas imports, with price fluctuations becoming a notable concern for both market stability and consumer affordability. During such challenging times, the energy trilemma – balancing sustainability, affordability, and security – becomes increasingly difficult. Despite its complexities, this energy transition is crucial for the well-being of our planet and future generations.