I am speaking about the electricity market prices (wholesale). Yes, solar is decreasing market prices as its marginal cost is zero (producing or not producing is "the same" cost-wise).
Of course, it does not mean that your bill that you pay at the of the month is lowered. You have to add network costs, taxes as well as potential levies to support renewables.
Very interesting post. A number of people marvel at how many GW of wind and solar are being installed every year. But they don’t seem to ask themselves “what is the value of that electricity?” You clearly show that the value is fairly low, and will continue getting lower for the foreseeable future.
I wonder if we could make a difference between a market cannibalization effect and a grid-physical cannibalization effect?
The grid-physical one reflected to the congestion aspect of the grid-lines, whatever they are dedicated to transportation (~=High Voltage) or local distribution (~=Low Voltage).
It's seems that in some areas the grid-physical cannibalization would be a first - physical - limit to the exponential increase of the impact of increased solar power capacity on market prices.
How do you see this articulation between decentralised and centralised aspects?
My opinion is that market prices reflect the physical reality with some approximations.
Some physical constraints are not present in the "market" and therefore, the market is blind but, congestions happen and indeed, it might lead to curtailment.
I think that grid constraints are already limiting the expansion in some places (just see the time for a connection for new projects).
More precisely, I would add:
- Price differences between bidding zones are the reflection of a lack of transmission capacity. That's why cannibalization will affect more some more constrained countries (= Spain, Greece).
- Redispatching within a bidding zone is only there because of lack of internal infrastructure.
- Local congestion is never considered in market prices but it leads to "curtailment".
Here is an interesting link on the fact that congestion and economic curtailment (or offloading) might be related somehow. My opinion is that we have a market, which is an imperfect representation of the physical reality. And the imperfections sometimes appear in the forms of congestion, redispatiching, etc.
Even with the flexible / dispatchable demands posited, the extreem PV penetration means at high output times, these sinks will daturate, and the canonization will still be there.
The dispatchable demand would mean the should hours will be better.
A big unknown is the extent of the flexibility that we can achieve, I believe (batteries, electric cars, general flex., etc.). Still, solar is growing at such a rapid pace that it is indeed likely that solar would set the price in the market when the sun is shining ==> market price at 0 or negative ==> cannibalisation effect.
Sorry, but I still don’t understand what the term “solar cannibalization” means.
The definition you gave does not make sense to me “solar tends to capture lower market prices when its penetration is high.”
How does a technology “capture” a price?
Are you saying solar drives down the price of electricity, or is it something else?
I am speaking about the electricity market prices (wholesale). Yes, solar is decreasing market prices as its marginal cost is zero (producing or not producing is "the same" cost-wise).
Of course, it does not mean that your bill that you pay at the of the month is lowered. You have to add network costs, taxes as well as potential levies to support renewables.
Very interesting post. A number of people marvel at how many GW of wind and solar are being installed every year. But they don’t seem to ask themselves “what is the value of that electricity?” You clearly show that the value is fairly low, and will continue getting lower for the foreseeable future.
I'm going to try and rack my brain and figure out how to stay warm this winter without going broke.
Thank you for these posts.
I wonder if we could make a difference between a market cannibalization effect and a grid-physical cannibalization effect?
The grid-physical one reflected to the congestion aspect of the grid-lines, whatever they are dedicated to transportation (~=High Voltage) or local distribution (~=Low Voltage).
It's seems that in some areas the grid-physical cannibalization would be a first - physical - limit to the exponential increase of the impact of increased solar power capacity on market prices.
How do you see this articulation between decentralised and centralised aspects?
Thank you
Thanks Benjamin for your interesting comment.
My opinion is that market prices reflect the physical reality with some approximations.
Some physical constraints are not present in the "market" and therefore, the market is blind but, congestions happen and indeed, it might lead to curtailment.
I think that grid constraints are already limiting the expansion in some places (just see the time for a connection for new projects).
More precisely, I would add:
- Price differences between bidding zones are the reflection of a lack of transmission capacity. That's why cannibalization will affect more some more constrained countries (= Spain, Greece).
- Redispatching within a bidding zone is only there because of lack of internal infrastructure.
- Local congestion is never considered in market prices but it leads to "curtailment".
Here is an interesting link on the fact that congestion and economic curtailment (or offloading) might be related somehow. My opinion is that we have a market, which is an imperfect representation of the physical reality. And the imperfections sometimes appear in the forms of congestion, redispatiching, etc.
https://wattclarity.com.au/articles/2023/05/renewable-curtailment-forced-and-not-quite-so-forced/
Even with the flexible / dispatchable demands posited, the extreem PV penetration means at high output times, these sinks will daturate, and the canonization will still be there.
The dispatchable demand would mean the should hours will be better.
A big unknown is the extent of the flexibility that we can achieve, I believe (batteries, electric cars, general flex., etc.). Still, solar is growing at such a rapid pace that it is indeed likely that solar would set the price in the market when the sun is shining ==> market price at 0 or negative ==> cannibalisation effect.