Rising renewable penetration weakens energy cost pass through to consumer prices

We study whether rising wind-and-solar penetration weakens the transmission of producer energy-cost shocks to consumer inflation. Using a monthly multi-country panel for 2014–2025 that links PPI-energy, CPI, retail electricity tariffs, and a production-based renewables share, we estimate a FAVAR-SVAR with interaction-augmented local-projection impulse responses. Energy-cost shocks are identified as innovations in PPI-energy and validated with external instruments for oil and gas shocks. Baseline results show that a one-standard-deviation energy-cost shock lifts CPI by about 0.10 pp at six months and cumulates to roughly 0.31 pp at twelve months. State dependence is strong: moving from a low to a high renewable’s regime reduces the 12-month pass-through by ≈0.14 pp (≈40%), and a +10 pp increase in the renewables share lowers the peak CPI response by ~0.04 pp (h≈6). The attenuation appears in both liberalized and regulated retail markets, consistent with a merit-order “level” effect and retail-tariff filtering. Results are robust to alternative shock definitions (wholesale electricity innovations), sign-restricted identification, tail treatments, and jackknife country exclusions. Policy implication: advancing renewables and well-designed tariff frameworks can dampen the inflationary impact of energy-cost shocks.