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What Happens When Renewables Eat Their Own Profits?

Clean energy could become so cheap there’s no incentive to build any more.

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.

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.

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.

By 2034, the analysis revealed, negative prices could account for 13.5 percent of out-turn periods. At the same time, there would be an increase of energy pricing spikes, caused by the need for flexible generation to step in when wind or solar was not available.

Cornwall’s modeling showed prices could top GBP £120 ($160) per megawatt-hour for 9 percent of all out-turn periods in 2034, compared to just 0.04 percent in 2018.

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.

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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