The effect of variable renewable energy sources on electricity price volatility: the case of the Iberian market

The relationship between variable renewable energy supply (V-RES) and electricity price volatility is a controversial issue in the economic literature. In general, the literature has been inconclusive about the sign of the impact of installed capacity of these technologies on price volatility. This paper investigates the impact of V-RES on price volatility for the Iberian Market of Electricity (MIBEL), in the period ranging from 2010 to 2015. Using regression analysis and EGARCH models, we conclude that V-RES, and more specifically wind power supply, heightens price volatility. Likewise, greater intraday variability of V-RES also induces higher price volatility. Finally, following an analysis of the connection with the French market, we find that market coupling could help alleviate the sensitivity of price volatility to wind power supply variability.