Are EU's Climate and Energy Package 20-20-20 targets achievable and compatible? Evidence from the impact of renewables on electricity prices

Abstract

This paper studies the realizability and compatibility of the three CEP2020 targets, focusing on electricity prices. We study the impact of renewables and other fundamental determinants on wholesale and household retail electricity prices in ten EU countries from 2008 to 2016. Increases in production from renewables decrease wholesale electricity prices in all countries. As decreases in prices should promote consumption, an apparent contradiction emerges between the target of an increase in renewables and the target of a reduction in consumption. However, the impact of renewables on the non-energy part of household wholesale electricity prices is positive in six countries. Therefore, decreases in wholesale prices, that may compromise the CEP2020 target of decrease in consumption, do not necessarily translate into lower household retail prices. Monte Carlo simulations suggest that the probability of achieving CEP's target of reductions in GHG emissions for 2020 is lower than 1% in Austria, Portugal, and Spain. In horizon 2030, Austria, France, Germany, Portugal, and Spain have probabilities lower than 1% of achieving the GHG emissions target. Finland and France present success probabilities lower than 1% on the national targets of renewable sources for 2020 and 2030 as do Austria and Spain with reductions in electricity consumption.