City Research Online

Abstract

This paper examines the occurrence of price bubbles in wholesale day-ahead electricity markets and investigates the impact of geopolitical and climate risk on such extreme price movements. The empirical analysis is executed for twelve major European electricity markets, namely APX (Netherlands), BPX (Belgium), EEX (Germany), EPX (United Kingdom), GME (Italy), NordPool (Finland, Norway and Sweden), OMEL (Portugal), OPCOM (Romania) and POWERNEXT (France). Our findings reveal that the probability of price bubbles increases with higher geopolitical risk and elevated air temperatures, while it decreases with greater precipitation and stronger wind speed. Specifically, a one-unit increase in geopolitical risk raises the probability of price explosiveness by 8.23%. These results underscore the urgent need for European countries to accelerate renewable energy deployment, enhance power system flexibility, and strengthen electricity market integration. Such measures are critical to achieving climate targets, protecting consumers from future energy crises, and supporting the affordable electrification of the manufacturing sector.

Publication Type:	Article
Additional Information:	© 2025. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords:	Wholesale electricity market, Geopolitical risk, Climate risk, Energy transition, Price bubbles, Backward Supremum ADF
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management J Political Science > JA Political science (General) J Political Science > JN Political institutions (Europe)
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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