A recurring theme in energy market discussions is the fear that increasing shares of solar and wind with negligible running costs will lead to plummeting electricity prices — so-called price cannibalisation — making further investments in renewables uneconomic.
This has fuelled concerns that investment in renewables — having at last reached cost competitiveness — may yet stall and fail to deliver the required total decarbonisation of the power sector. Merchant investment might be unfeasible. Ever-growing subsidies might be required, and perhaps even these won’t suffice to decarbonise completely. We find this to be entirely avoidable.
In this deep dive — part of our Power System Blueprint website — we look at the options policymakers have in avoiding price cannibalisation and make the case for how to deploy renewables in a cannibalisation-free environment. We also assess the extent to which options to counter unhelpful price cannibalisation are currently deployed in the current European market design and regulatory framework. Since it comes out as a mixed bag, we identify needed improvements to build on the strengths of European policy framework.