Energy market integration and renewable energy development: Evidence from the European Union countries

Based on the panel data of 20 countries in EU during the period of 2007-2019, this paper study the effect of energy market integration (EMI) on renewable energy development (RED). We develop a general equilibrium model to explain how EMI affect the RED and the role of different mechanisms. The empirical results reports that the European EMI increased both the consumption and power generation of renewable energy, which proves a significant positive effect of EMI on the RED. In line with our expectations of theoretical model, our estimates show that the increase of renewable energy consumption is mainly due to the fossil energy cost increased, technology advancement and regional environmental regulation strengthening. And the fossil energy cost is the main driven force which plays a completely mediating role between EMI and RED. Furthermore, we also observe a negative effect of FDI and industry structure on RED.

Automated summary

This paper examines the impact of energy market integration (EMI) on renewable energy development (RED) in Europe based on panel data from 20 countries in the EU. It develops a general equilibrium model and provides empirical evidence to support its findings. The results show that EMI has a significant positive effect on RED, increasing both consumption and power generation of renewable energy. The study also finds that the increase in renewable energy consumption is driven by higher fossil energy costs, technological advancements, and stronger regional environmental regulations. Furthermore, it observes a negative effect of foreign direct investment (FDI) and industry structure on RED.