Have renewables decreased electricity prices: European edition

Posted on 28 July 2025 by Guest Author

This is a re-post from the Climate Brink by Andrew Dessler

We’ve been posting a lot recently about how renewables lower electricity costs. Last week, Zeke posted about the impact of renewables on U.S. electricity prices. In response to that, several people pointed us to a figure that seems to show something different:

The plot shows a clear correlation between retail cost of electricity and the fraction of renewable energy for many countries around the world.

So does this mean that renewable energy actually raises the price of electricity?

First, I wanted to verify the figure, so I downloaded the data for Europe and plotted retail price vs. renewable fraction (the fraction of electricity produced by wind and solar):

This closely resembles Figure 1, confirming that the legitimacy of the correlation in the original plot.

But … the world of science is littered with the corpses of scientific analyses that assumed correlation proves causality. It does not.

Figs. 1 and 2 plot the retail price, which includes many things besides the cost of generating power. It also includes network costs (transmission and distribution) and taxes + fees.

A better analysis would use the cost of generating power in order to isolate the impact of renewables. We can get a better estimate of that by using the wholesale price of electricity:

The plot shows that the correlation between price and renewable fraction has entirely disappeared. To the extent that a relation exists, increasing renewable fraction decreases the wholesale cost of power.

The plot also shows that the cost of generation is generally a small part of the total cost of electricity.

This lack of correlation is expected given how wholesale energy markets price electricity. In countries that utilize wholesale power markets, it is the most expensive generator that sets the wholesale price. This is almost always a natural gas generator.

Thus, the wholesale price of electricity is mainly determined by the price of natural gas. This relationship can be illustrated by plotting Germany’s wholesale electricity prices against natural gas prices over the past decade:

Next time someone says, “Germany installed a lot of wind and solar and it’s electricity prices skyrocketed,” you can let them know that was a consequence of increases in the price of natural gas.

Every country in Europe has a similar regression, as do many other markets, such as ERCOT.

Given this, why is there a correlation in Figs. 1 and 2 between cost and renewable fraction? We know it’s not due to the wholesale price, leaving network costs (e.g., transmission) and taxes + fees.

My hypothesis is that the correlation stems from wealthier countries having both higher renewable adoption and higher tax rates on electricity.

Consider Denmark, for example. It plays a key role in the regression in Figs. 1 and 2 by having both very high price and also high renewable fraction, thereby anchoring one end of the regression.

But Fig. 3 shows that its wholesale price of power is the same as everywhere else. The explanation is that Denmark’s high electricity costs stem primarily from taxes, which comprise 41% of the retail price.

Conversely, countries with very low retail prices are typically developing nations or major oil producers, which have few renewable generators and also heavily subsidize electricity costs.

tl;dr: Climate misinformers want you to believe that correlation shows causality, but a deeper investigation shows that renewables do not appear to be increasing the cost of energy generation.

This makes sense since electricity costs on today’s grids are mainly set by the price of natural gas. Taxes also can have a big impact on retail prices.

All of the actual evidence we have is that adding renewables reduces the cost of electricity.