What will price cannibalisation mean for Europe’s renewable energy assets?

As global renewable energy capex grows to almost US$200 billion a year, price cannibalisation is increasingly in the spotlight. Although impacting power price formation in Europe, when it comes to the development of price signals, renewables are price takers and not price setters. Since most existing wind and solar assets do not provide flexible generation, their realised prices are lower than average wholesale power prices in a market - this influence expands as the prenetration of renewables rises. Regulators are moving away from 20 to 30-year contracts for renewables – meaning investors must pay more attention to three things: gas price downside; terminal asset value; and opportunities to reverse negative captured price deltas.