The electricity you pay for is more than volts and watts; it’s a living system threading wind, sun, pipelines, and policy into a price that changes by the hour. When the Russian gas pipeline saga jolted Europe in 2022, it didn’t just raise bills — it tested the resilience of an interconnected power market that Europe has spent years stitching together. A new study from the University of Milan and BI Norwegian Business School undertakes a generous, unnerving mapping of that system. Led by Francesco Ravazzolo, Luca Rossini, and Andrea Viselli, the work uses a bold, data-rich approach to ask not just what electricity costs, but how shocks move across borders and through time when wind and gas collide on the grid.
Think of it as watching an orchestra where the price of gas conducts some players and the forecast of wind and sun keys the rest. The researchers combine hourly electricity prices with daily fossil-fuel prices and hourly forecasts of renewable generation, then let a single, carefully designed model sort out the common European rhythm from country-specific quirks. The point isn’t merely to predict prices more accurately; it’s to understand the channels through which a shock in one country or one hour can ripple outward — for better and for worse — across all nine markets studied: Denmark, Finland, France, Germany, Italy, Norway, Portugal, Spain, and Sweden.
Behind the math sits a simple, human intuition: electricity markets are more tightly linked than people realize, yet local policy, geography, and resource mix still color outcomes. The study takes this intuition seriously by using a novel Bayesian panel method that can juggle many moving parts at once. It treats the European market as a single system with both shared forces and country-level deviations, while also respecting the fact that some inputs operate in different time scales. The result is not a single forecast, but a map of where integration helps, where it hurts, and how big the differences are across hours of the day and across countries.
What the study does
The core contribution is a modeling approach the authors call PRUMIDAS — a panel reverse unrestricted MIDAS model designed for mixed frequencies. In plain terms, it is a Bayesian framework that lets the price you see at hour t + h be influenced by signals that arrive at different cadences: some inputs (like wind and solar forecasts) are hourly, while others (coal, gas, and CO2 prices) arrive daily. The model also weaves in a hierarchical structure that can pull strength from common European patterns while allowing country-specific deviations. It’s a clever compromise: it keeps the model manageable without pretending that every country walks its energy path in perfect lockstep.
To build a robust picture, the authors assemble an unusually rich dataset. They pull hourly day-ahead electricity prices from nine European markets across 2019–2023, paired with hourly forecasts of demand, wind, and solar generation. On the fossil-fuel side, they incorporate daily prices for coal, gas, and CO2 allowances, all converted into a common energy unit. The nine-country frame matters: it lets the researchers see how shocks and policy choices in one corner of Europe interact with neighbors at the other end of the grid, and how those interactions evolve over time.
Interpretability matters here. The model splits effects into common European factors and country-specific random effects, then further teases apart how hourly patterns (like morning ramps or evening peaks) interact with country-level idiosyncrasies. The researchers emphasize that this isn’t just about finding dark corners of the data; it’s about understanding how integration translates into real-world outcomes — price convergence, volatility, and resilience in the face of external shocks. The approach also allows the model to reveal how volatility itself shifts over time, without the need for a separate, heavy volatility model. In other words, the method tries to read the room as well as the rhythm of the price ticks.
What the results reveal
At the heart of the findings is a simple, powerful pattern: renewable energy tends to push electricity prices down across most of Europe. Forecasted wind and solar generation consistently exert a downward pressure on prices, a result that holds across several major markets, with one notable caveat: Finland shows a more muted response to solar generation. The overall story, though, is one of renewables acting as a price damper and a force for cross-border convergence. It’s not a universal flattening, but the trend is clear: more wind and sun help dampen spikes and narrow gaps between countries’ prices.
The other half of the equation is gas. Gas prices emerge as the dominant driver of cross-country price disparities and price volatility. When gas becomes expensive, electricity prices tend to rise, and the differences between countries widen, especially in places like Italy and Germany that have relied heavily on gas generation in the past. A striking illustration of this dynamic is the Iberian Peninsula, where Spain and Portugal benefited from a policy window known as the Iberian exception in 2022, which capped gas prices and attenuated spillovers. That policy quirk helped shield Iberia from some of the cross-border volatility that battered the continent’s other markets.
The study makes a critical point about what integration can do in practice. In calmer times, a well-integrated market can lower prices and improve efficiency by letting neighboring countries share surplus power and export when needed. In times of crisis, however, that very integration can transmit shocks more easily. When gas flows falter or price spikes surge, interconnected grids can propagate trouble as efficiently as relief. The paper notes that France’s nuclear outages and the Nordic region’s particular vulnerabilities vividly illustrate how interdependence can be a two-edged sword during systemic shocks.
Beyond the headline effects, the authors drill into the post-invasion period (the Russia-Ukraine conflict) to see how channels of transmission shift under stress. They find that the estimated effects of solar and wind on prices tend to be larger during the crisis for several countries, reinforcing the stabilizing role of renewables even when the sun isn’t shining. Gas-price linkages, meanwhile, intensify in Denmark and Italy, reflecting how these countries’ energy mixes and geopolitical exposures influence price transmission under stress. In Iberia, policy interventions that capped gas prices helped decouple wholesale electricity from gas spikes, stabilizing the local market even as the rest of Europe wrestled with volatility.
Importantly, the paper doesn’t treat all countries as followers of an inexorable European trend. The results show substantial cross-country heterogeneity in both the magnitude of country-specific effects and the uncertainty around them. Some countries exhibit tight, well-behaved posteriors for renewables’ impact, while others show broader distributions for gas-price effects, reflecting different dependencies and market frictions. The Nordic trio (Finland, Norway, Sweden) display a different flavor from the continental cluster (Germany, France, Italy, Denmark), and the Iberian pair (Portugal, Spain) show how targeted policy tools can reshape the transmission web. It’s a reminder that integration is a shared project with local fingerprints, not a single script for all of Europe.
Policy takeaways for a stormy future
What does this all mean in the real world of policymakers, grid operators, and households? First, the arithmetic is encouraging: expanding renewable capacity is a robust way to press prices downward and to knit markets closer together. The strongest price-reducing effects cluster around countries with substantial wind and solar investments, notably Germany, Denmark, and Italy. The takeaway isn’t merely about hitting a renewable quota; it’s about how renewables interact with cross-border flows to soften the price windstorm for the whole region. Yet the study also breathes a dose of realism: renewables aren’t a silver bullet. They are intermittent, and without sufficient storage or flexible backup, their volatility can still translate into system risk during periods of high demand or tight supply.
Second, the work highlights the central importance of diversification and coordinated fossil-fuel strategies. Gas remains a stubborn hinge on which price disparities swing. The positive correlation between gas prices and electricity prices in many countries underscores the risk of overreliance on a single gas corridor or a single set of imports. The Iberian exception demonstrates what coordinated policy can do: cap gas costs to tame volatility and prevent spillovers from cascading across borders. The policy implication is clear — regional strategies for gas procurement, storage, and risk-sharing can meaningfully dampen price contagion and improve resilience.
Third, the paper’s broader lesson is less about inevitability and more about design. Market integration is a force for efficiency and lower prices under normal conditions, but it requires careful governance to protect against crisis. That means building a truly pan-European toolkit: diversified generation, enhanced transmission capacity, better storage, joint procurement where sensible, and regulatory frameworks that can flex without fragmenting the market when shocks hit. It’s a call for concerted, cross-border planning that treats the European grid as a single, shared asset rather than a patchwork of national systems with occasional lines between them.
Finally, the human heartbeat of the piece comes through in the reminder that energy prices shape daily life: bills, industrial competitiveness, and even political sentiment hinge on how well Europe can ride the waves of gas markets and renewables. The study, a collaboration anchored at the University of Milan and BI Norwegian Business School, with authors Ravazzolo, Rossini, and Viselli at the helm, offers more than a snapshot. It gives policymakers a map of where the seams are strongest, where the stitching has worked, and where new threads are needed to keep the lights on and the costs sane as the energy transition continues to unfold across a continent of very different climates, resources, and ambitions.
The big takeaway is hopeful and urgent: renewables are powerful levers for price stability and market integration, but achieving resilience in a volatile global energy landscape requires deliberate, coordinated action across borders. The PRUMIDAS framework—by marrying high-frequency price signals with lower-frequency fossil-fuel data and layering country-specific nuance on top—offers a blueprint for watching how Europe’s electricity market stands up to shocks, hour by hour and country by country. As Europe continues to draw the map for a green, secure energy future, studies like this remind us that the most important graphs aren’t just lines on a page — they’re the stories of how communities share power, literally and figuratively, in a connected age.
