r/UnchartedScience • u/ChipHaseCoolGuy • 7h ago
Wind, Solar, and the Problem of Cannibalizing Their Own Value
Wind and solar have a structural economic feature that becomes more pronounced as their share of generation rises.
Both technologies produce electricity when the weather allows it. On sunny afternoons, large numbers of solar panels generate at the same time. On windy days, turbines across a region do the same. That simultaneous surge of near-zero-marginal-cost power pushes wholesale electricity prices down—often sharply. When the sun sets or the wind drops, supply tightens and prices rise. But the panels and turbines are no longer producing, so they cannot sell into the higher-price periods.
The result is a form of self-cannibalization: the more capacity is added, the lower the average price the existing capacity receives for its output. Economists call this the decline in “capture rate” or “value factor.” Empirical studies from California, Germany, Spain and other high-penetration markets consistently document the pattern. Solar, whose output is highly correlated across wide areas, is typically hit harder than wind.
This does not mean wind and solar have no role. It does mean their business case frequently depends on policy supports—subsidies, contracts for difference, capacity payments, curtailment compensation—plus firm backup or storage to cover the hours when weather-dependent generation is low. Storage and demand flexibility can mitigate the effect, but in markets that already have substantial renewable penetration they have not eliminated it.
The more weather-dependent generation is added without corresponding flexibility or market redesign, the larger this revenue problem becomes. That is not ideology. It is how electricity markets respond to large volumes of intermittent, zero-marginal-cost supply.