What Happens When Renewables Eat Their Own Profits?
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Clean energy could become so cheap there’s no incentive to build any more.
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The plummeting cost of renewables could be a double-edged sword if energy markets fail to deliver the financial returns to justify further investments, experts believe.
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In the U.K., for example, a study by Cornwall Insight, an analyst firm, this month found that unsubsidized renewable energy projects could cease to be viable by the 2030s because solar and wind generation would have pushed wholesale power prices so far
down.
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The company modeled the U.K. energy system and found, unsurprisingly, that periods of low or even negative pricing would become more commonplace as the level of low-cost solar and wind increased on the grid.
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These pricing swings could be good news for investors in flexible generation assets and energy storage, because “increased volatility creates greater arbitrage value,” said the report.
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At the same time, though, a general reduction in wholesale energy prices and a narrowing window of opportunity to sell into markets already packed with renewable generation would make it increasingly hard to achieve a return on unsubsidized wind and
solar projects.
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These impending changes in grids around the world have led some observers to question whether it might be time to overhaul the way energy markets are set up.
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“Failing to plan for a diverse mix of low-carbon generators could lead to premature shutdown of some resources, such as nuclear, even when keeping those resources running might be the most cost-effective decarbonization path,” he told GTM.
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Instead, he commented, “energy markets should be structured to ensure that the mix of electric power supply achieves the desired greenhouse gas emissions level, ideally zero by midcentury, at the lowest possible cost, while assuring reliable and safe
electricity supply.”
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“Electricity is a commodity, but there are multiple ways of supplying it,” Leibreich said. “The key to cheap, resilient, clean energy lies in the ability to put together the perfect portfolio of different types of power.”

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