The impact of renewable energy on extreme volatility in wholesale electricity prices: Evidence from organisation for economic co-operation and development countries

As global climate change intensifies, the Paris Agreement aims to limit global temperature increases to within 2 °C above pre-industrial levels, with efforts to limit the increase to 1.5 °C. A key strategy to achieve this goal is accelerating the transition of the power grid to renewable energy sources. This study uses annual data and constructs annual extreme positive and negative wholesale electricity price fluctuations from daily weighted wholesale electricity spot prices. It examines the impact of various renewable energy sources on extreme positive and negative wholesale electricity price fluctuations in 32 Organisation for Economic Co-operation and Development countries from 2015 to 2023. Using dynamic panel threshold regression, we find that the proportion of renewable energy generation significantly reduces extreme price fluctuations once certain thresholds are exceeded. This finding underscores the importance of developing renewable energy sources such as hydropower, wind power, solar power, and biomass energy. It also highlights the challenges posed by the intermittency and unpredictability of renewable energy at lower penetration levels. Policy recommendations include developing energy storage technologies, building modern grid infrastructure, and formulating policy incentives to support the diversification of renewable energy. Future research should focus on the long-term impacts of renewable energy integration and the role of policy frameworks in supporting this transition, ensuring a comprehensive and sustainable energy transformation.