We present a new report prepared by Frontier Economics, providing robust empirical evidence on the drivers of wholesale electricity prices and volatility across Europe.
Amid growing concerns over global energy supply disruptions linked to geopolitical tensions in the Middle East, this timely report finds that European electricity markets continue to function as intended. Wholesale price levels and volatility reflect underlying supply and demand fundamentals – including gas prices, weather conditions and system tightness – rather than structural shortcomings in market design. The report confirms the central role of short-term wholesale markets in efficient price discovery, security of supply and minimising system costs.
Against the background of the European energy crisis (2021–2023) and the ongoing reform debate, the report examines market functioning and its performance under varying conditions. The analysis is based on data from 39 bidding zones covering 26 European countries over the period 2018–2024.
While volatility increased significantly during the energy crisis, this was largely driven by external shocks – most notably elevated and volatile gas prices, unfavourable weather conditions affecting renewables, hydro and nuclear generation, and insufficient cross-zonal transmission capacity.
The report further underlines that price volatility is an inherent and necessary feature of well-functioning electricity markets. It provides essential signals for operational decisions and for investment in flexibility, including storage, demand-side response and interconnection capacity.
