Greentech media | Why Aren’t Falling Renewables Costs Cutting European Energy Market Prices?

Tom Edwards Senior Modelling Analyst shared his thoughts on renewables and why European power prices have yet to see a significant fall in Greentech Media. There are several reasons for this including renewables still account for a relatively small proportion of generation.

Tom explains that there’s another, more important factor to consider: The relatively weak power price formation role that renewables now play in European markets.

Whichever plant was required to meet the last megawatt of demand is the price-setting technology. While low-cost renewables offset a certain portion of the grid’s needs, it’s still fossil-fuel-fired plants that are setting the marginal costs.

As for falling spot prices, low-cost resources such as wind and solar power tend to have the greatest impact on those short-term markets, largely from changing weather patterns, This has led to a steady year-on-year increase in negative pricing in day-ahead markets, leading energy suppliers to hedge their exposure to price volatility — and hedging adds to cost. 

Tom Edwards, Senior Modelling Analyst

Greentech Media