The increasing penetration of renewable energy sources (RES) in European electricity markets is commonly associated with lower wholesale prices. However, its implications for price stability remain ambiguous. Evidence from Bulgaria for 2025 indicates that while a higher RES share systematically reduces average day-ahead wholesale prices, it does not lead to lower price volatility; rather, it is associated with increased short-term price fluctuations.
The analysis is based on hourly generation data from Electricity System Operator (ESO) and 15-minute day-ahead wholesale prices published by ENTSO-E, covering the entire year 2025. Renewable generation includes bioenergy, photovoltaic plants, wind power plants, small, and large hydropower, expressed as a share of total electricity generation. Data was aggregated to daily frequency. Price volatility was calculated as the 30-day rolling standard deviation of logarithmic daily average wholesale prices, allowing for a consistent measure of medium-term variability while preserving sensitivity to structural changes.
The correlation analysis reveals two statistically robust relationships. First, there is a significant negative relationship between daily RES share and average daily wholesale prices (the Pearson correlation coefficient equals –0.44, while the Spearman: –0.5, both statistically significant with p < 0.001). This confirms the merit-order effect: low marginal-cost renewable generation displaces higher-cost conventional units, lowering the market clearing price. Second, there is a significant positive relationship between daily RES share and price volatility (both Pearson and Spearman correlation coefficients equal approximately 0.43, p < 0.001). Hence, higher renewable penetration coincides with greater short-term variability of prices.
Descriptive statistics further illustrate the coexistence of low average prices and heightened intraday variability under high renewable penetration. The highest hourly RES share of the year (above 70%) occurred on 27 July at 13:00, dominated by solar generation, when wholesale prices fell to approximately 20 EUR/MWh. However, on the same day, evening wholesale prices exceeded 110 EUR/MWh following the decline in solar output. This pattern reflects pronounced intraday asymmetry between surplus periods and ramping hours. At the monthly level, May recorded the highest average RES share (42%), while average wholesale prices were among the lowest in the year (approximately 85 EUR/MWh). At the same time, price volatility was also among the highest, exceeding 35%. This combination of low-price levels and elevated variability further supports the empirical finding that increased renewable penetration reduces mean prices but does not stabilize short-term price dynamics. At the annual level, hourly wholesale prices ranged from –100.63 EUR/MWh (1 May) to 603.3 EUR/MWh (20 January), demonstrating the coexistence of surplus-driven negative prices and scarcity-driven spikes within the same market framework.
These findings are consistent with broader European analyses, including IMF research covering 24 European economies (2014–2021)1, showing that increasing RES penetration lowers average wholesale prices, but its impact on volatility is heterogeneous across markets and across different segments of the price distribution. Once renewable shares exceed certain thresholds, extreme price events become more frequent, particularly during hours of concentrated solar or wind output. Volatility tends to remain moderate at lower RES shares but may increase non-linearly when system flexibility is insufficient. Limited storage capacity, constrained cross-border interconnections, and weak demand responsiveness amplify price swings. As a result, average prices decline, while short-term volatility increases.
Compared to highly interconnected Western European markets, Southeastern European systems exhibit more limited cross-border balancing capacity and fewer flexible demand-side resources. In such conditions, surplus renewable production cannot always be efficiently exported or stored, leading to local price depressions. Conversely, when renewable output declines – particularly during evening ramping periods – conventional generation must respond rapidly, often at higher marginal cost, generating price spikes.
Advanced modelling results from Regional Centre for Energy Policy Research (REKK)2 further support this interpretation. Simulations based on European-wide data (including Bulgaria) show that increasing photovoltaic capacity reduces average prices but increases the number of high-price hours, primarily because peak demand periods often coincide with zero PV production. Higher PV penetration also raises reserve requirements, contributing to more frequent price spikes. Additional wind capacity tends to moderate both average prices and the frequency of extreme spikes, as wind generation can occur during high-price hours, although reserve needs still increase. Even modest improvements in cross-border capacity significantly reduce high-price hours and dampen regional price extremes. High battery penetration reduces both average prices and price spikes, while reductions in consumption exert the strongest stabilizing effect overall.
Therefore, the Bulgarian evidence for 2025 supports a nuanced conclusion: increasing RES penetration lowers the average wholesale electricity price but does not guarantee price stability. On the contrary, higher daily RES shares are positively correlated with higher price volatility. Without complementary investments in storage, demand-side flexibility, reserve capacity, and cross-border integration, rising renewable shares can intensify short-term price fluctuations. While decarbonization reduces long-term marginal costs, it also introduces variability that must be managed through system flexibility. Improving forecasting accuracy, expanding storage capacity, strengthening regional interconnections, and enhancing demand response mechanisms appear essential to convert high renewable penetration into both low and stable wholesale energy prices.
Author: PhD Candidate Lyubimka Georgieva
Data sources: ESO (Historical EES generation data) & ENTSO-E Transparency Platform (Day-Ahead Market, Energy Prices)
Analysis performed in Python
Visualisation created in Canva