THE IMPACT OF RENEWABLE ENERGY GENERATION ON DAY-AHEAD ELECTRICITY PRICES: A COMPARATIVE ANALYSIS OF ITALY AND SPAIN

As European countries gradually decarbonize their electricity mix, the increasing share of renewable generation is reshaping day-ahead market outcomes. While before the 2022 energy crisis Italy and Spain showed comparable market dynamics, following the disruptive expansion of solar production Spain started experiencing rather low prices during daylight hours, while Italy still faces bills among the highest in Europe. This work analyzes the impact of solar and wind generation on day-ahead electricity prices in Italy and Spain between January 2019 and April 2025. Exploiting an OLS model comprising forecast solar and wind generation as exogenous treatments, and forecast load, natural gas prices and ETS allowances prices as controls, the analysis indicates the presence of a significant Merit Order Effect in both markets. However, post-crisis Spanish volatility highly reduces model accuracy. Given the similar market design and the broadly comparable climatic conditions, in the coming years the Italian market could start experiencing dynamics similar to Spain’s. At the same time, high renewable penetration requires further investments in network adequacy, transmission lines and storage capacity to ensure grid stability. Spain’s experience provides valuable insights for anticipating future trends and challenges in the Italian electricity sector.