Renewables, Energy Mix and Inflation in the European Union Countries

Abstract

One of the effects of the 2022 energy crisis was a high increase in inflation. According to a review of the literature on the subject, a factor that may increase the economy’s resistance to external price shocks is the relatively high share of renewable sources in energy production. The aim of this paper is to assess the relationship between the share of renewables in energy production and the level of HICP and core inflation in a cross-sectional approach in the crisis year of 2022 within the EU countries. This study used regression methods, cluster analysis and dispersion measures. As a result of the analysis, it was found that in 2022 (using a cross-sectional approach), there was a statistically significant relationship between the above-mentioned variables. A higher share of renewables by 1 p.p. meant lower HICP by 0.13 p.p. and lower core inflation by 0.1 p.p. “Wind” and “solar” had the greatest importance in the multiple regression equation. It can also be stated that in 2022, countries with a similar energy mix structure were characterized as having a similar rate of inflation. It is therefore justified to increase the share of renewables in energy production, because it brings not only positive environmental but also economic effects.

Renewable Energy in the Eurozone: Exploring Macroeconomic Impacts via FMOLS

“…Our analysis indicates that the increasing inflation rate negatively influences the Share of Energy from Renewable Sources. These findings align with the results of studies that focused on the relationship between renewable energy, inflation, and other economic variables [14,15]. Specifically, our findings reveal a negative correlation between the Government Effectiveness Index (GEI) and the share of renewable energy.…”

“…Within existing studies, for example [13][14][15], the relationship between the Share of Energy from Renewable Sources and inflation is actively explored, emphasizing an analytical perspective on economic and energy interdependencies. The objective of the research outlined in [13] was to investigate the correlation between the utilization of renewable energy, the exchange rate, and the inflation rate through the application of the ARDL model.…”

“…The 2022 energy crisis had a notable impact on inflation, with the literature suggesting that a higher proportion of renewable energy sources could enhance economic resilience against external price shocks. The objective of the research conducted in [15] is to assess the correlation between the proportion of renewables in energy production and the Harmonized Index of Consumer Prices, as well as core inflation levels among EU countries during the crisis year of 2022. Through the utilization of regression techniques, cluster analysis, and dispersion measures, the investigation unveiled a statistically noteworthy relationship among these variables in 2022.…”