The impact of wind and solar power generation on the level and volatility of wholesale electricity prices in Greece

We investigate the impact of wind and solar power generation on the level and volatility of wholesale electricity prices in the Greek electricity market from August 2012 to December 2018. In the context of a GARCH-in-Mean model the empirical findings suggest the existence of the merit-order effect which is stronger in the case of wind power. Controlling for regulatory mechanisms that may affect price volatility, we find that while overall renewables have decreased price volatility, wind power tends to increase it and solar power tends to decrease it. Furthermore, during peak hours, wind and solar power generation tend to decrease price volatility, supporting the hypothesis that renewables’ output reduces the volatility of wholesale electricity prices when it is positively correlated with the electricity load. Finally, we find that the increase in the price-cap of the Greek wholesale electricity market was associated with a reduction in the volatility of wholesale electricity prices. This finding highlights the importance of the market structure and the degree of vertical integration of participants in liberalized electricity markets, which determines their behavior while also affecting market price volatility. •The merit-order effect exists and is stronger in the case of wind power.•Wind power increases price volatility and solar power decreases it.•Depending on the penetration mix of wind and solar capacity, price volatility may, increase, decrease or not change.•Regulatory mechanisms, such as price caps, have an impact on wholesale electricity price volatility.•Wind and solar power systems should be developed in balance to achieve desired effects on electricity price and volatility.