Do Renewables Reduce Energy Cost Pass Through? Evidence from Wind–Solar Penetration and PPI-to-CPI Transmission in a Multi-Country Panel
Do Renewables Reduce Energy Cost Pass Through? Evidence from Wind–Solar Penetration and PPI-to-CPI Transmission in a Multi-Country Panel

Summary/Abstract: This study examines whether rising wind- and solar-based renewable generation weakens the transmission of producer energy-cost shocks to consumer inflation. Using a monthly multi-country panel for 2014–2025, we estimate pass-through from energy-related producer price increases to CPI inflation and assess how this relationship varies with the share of renewables in electricity generation. A factor-augmented empirical strategy combined with local-projection impulse responses allows us to identify energy-cost shocks and trace their dynamic effects across countries with different market and tariff structures. The results show that energy-cost shocks significantly raise CPI inflation, but the magnitude of this pass-through declines as the renewable share increases. Moving from low to high wind-solar penetration reduces the one-year CPI response by roughly one-third, while a 10-percentage-point increase in renewables lowers the peak effect at six months. These findings are consistent with both wholesale price moderation and partial filtering through retailtariff frameworks. Robustness checks using alternative shock definitions, sample splits, and identification strategies confirm the attenuation pattern. Policy implications are clear: expanding renewable capacity, together with flexible system design and transparent tariff structures, can dampen the inflationary impact of upstream energy-cost shocks. The green transition therefore acts not only as a decarbonization pathway but also as a potential source of greater price stability.

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