The cannibalization effect of intermittent renewables: Are wind and solar power in Germany still dependent on policy support?

Abstract

Over the past few decades, European states have implemented measures to expand the role of renewable energy in electricity generation. Amid the current energy crisis, renewable sources are crucial for maintaining a reliable energy system and achieving EU sustainability goals. Policymakers are establishing incentives to attract investors and regulations that ensure the social and economic sustainability of renewable energy systems. This article examines how increased production from wind or solar energy can reduce their own market value and revenues - a phenomenon known as cannibalization. We also analyze how one technology can affect the market value and revenues of the other, referred to here as cross-cannibalization. We construct daily indices that measure the unit revenue and market value of wind and solar power, and apply linear and nonlinear quantile regressions to estimate how the distribution of revenues and value factors varies with renewable penetration and demand. Our findings indicate that both wind and solar energy experience cannibalization and cross-cannibalization primarily in the lower quantiles of their distributions, where market values are low. This effect intensifies with higher levels of wind and solar penetration and consumption. Interestingly, we find that solar power can increase wind's market value in higher market value quantiles, indicating complementary generation patterns between the two technologies. As governments worldwide seek to promote renewable energy while reducing financial support, understanding the interplay between cannibalization effects and market conditions is essential. Our findings suggest that encouraging a balanced mix of wind and solar generation and investing in grid flexibility can help mitigate value cannibalization and enhance market stability. These insights can offer guidance for policymakers, investors, and industry professionals navigating the challenges of renewable energy expansion.