Sustainable Development of the European Electricity Sector: Investigating the Impact of Electricity Price, Market Liberalization and Energy Taxation on RES Deployment

Abstract

Replacing conventional CO2 intensive generation with green electricity from RES constitutes an essential prerequisite of sustainable development. Renewables play a vital role in achieving the UN’s goals for clean low-cost energy production and the reverse of climate change process. Based on a comprehensive dataset including observations for 17 European countries between 2003 and 2020, the present research attempts to unveil the fundamental determinants of RES deployment. A panel FMOLS approach was utilized to provide a detailed analysis of the impact of electricity prices, energy taxes and competition level in both power generation and the retail electricity market on each country’s RES percentage participation in electricity production fuel mix. The final econometric outcomes verified the strong statistical significance of all examined variables for the vast majority of the countries, constituting them crucial aspects of national energy strategies. However, both the actual effects as well as the impact size were found to differ significantly across Europe, signifying the complexity of the EU’s task to develop a unified, autonomous and eco-friendly electricity market based on the principals of a fundamental energy strategy. Contributing to state authorities’ and EU’s colossal effort to deal with the crucial challenges of RES power generation, the paper proposes a series of targeted individual and groupwise policy implications.