Interconnected wind turbines and solar panels with fading financial charts, representing the economic challenges of renewable energy growth.

Renewable Energy's Unexpected Side Effect: Why Wind and Solar are Clashing Across Borders

Lena Kashyap in Climate & Environment December 2025 • 4 min read.

"Discover how the growth of wind and solar energy in Europe is leading to a surprising 'cannibalization effect,' impacting energy markets and requiring innovative solutions."

The rise of wind and solar energy has been nothing short of revolutionary. Across Europe, these renewable sources are now a major part of the electricity mix. While this shift promises cleaner energy and a more sustainable future, it comes with its own set of challenges.

One of the biggest issues is the 'merit-order effect.' When the wind is blowing and the sun is shining, renewable energy floods the market, pushing down electricity prices. This is great for consumers, but it squeezes the revenue of renewable energy generators. This phenomenon is known as the 'cannibalization effect,' and it’s becoming a major headache.

A recent study dives deep into how this cannibalization effect plays out across interconnected European electricity markets. The research uncovers a surprising twist: the problem isn’t just local. As countries share energy across borders, the impact of wind and solar spills over, creating new winners and losers.

The Cannibalization Effect: How Renewable Energy Growth Depresses Market Value

Interconnected wind turbines and solar panels with fading financial charts, representing the economic challenges of renewable energy growth.

The core problem is that wind and solar energy have very low marginal costs. Unlike traditional power plants that need to buy fuel, wind and solar farms essentially generate electricity for 'free' once they're built. This means that when renewables are abundant, they can undercut other sources and drive down prices.

Think of it like this: imagine a farmer's market where one vendor is giving away apples for free. Other apple sellers would have to drastically lower their prices to compete, potentially hurting their bottom line. The same thing happens in electricity markets.

Decreased Revenue: Renewable energy generators earn less money for each unit of electricity they sell.
Investment Uncertainty: Lower market values can make it harder to attract investment in new renewable energy projects.
Subsidy Dependence: Governments may need to provide ongoing subsidies to keep renewable energy projects afloat.

This cannibalization effect is not just a theoretical concern. It's already happening in Europe. As the study points out, wind and solar have increased their combined market share from 11% in 2015 to 23% in 2022. This growth has coincided with a noticeable decline in the average market revenue for these energy sources.

Navigating the Future of Renewable Energy

The energy transition is a complex puzzle, and there's no one-size-fits-all solution. As Europe continues to embrace renewable energy, policymakers and industry leaders will need to work together to address the cannibalization effect and ensure a stable, sustainable energy future. This might involve a mix of market reforms, infrastructure investments, and technological innovation. The goal is to create a system where renewable energy can thrive without undermining its own economic viability. Only then can we unlock the full potential of wind and solar power and build a truly clean energy future.

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2405.17166,

Title: Cross-Border Cannibalization: Spillover Effects Of Wind And Solar Energy On Interconnected European Electricity Markets

Subject: econ.em

Authors: Clemens Stiewe, Alice Lixuan Xu, Anselm Eicke, Lion Hirth

Published: 27-05-2024

Everything You Need To Know

What is the 'cannibalization effect' in the context of renewable energy?

The 'cannibalization effect' refers to the phenomenon where the increased supply of wind and solar energy depresses electricity prices, which in turn reduces the revenue for renewable energy generators. Because wind and solar have low marginal costs, they can flood the market when available, driving down prices and potentially making it harder to finance new renewable energy projects. This effect is particularly relevant in Europe where the share of wind and solar has increased significantly.

How does the 'merit-order effect' contribute to the 'cannibalization effect'?

The 'merit-order effect' is a key driver of the 'cannibalization effect'. When the wind blows and the sun shines, wind and solar power are added to the electricity market. Due to their low marginal costs, this pushes down electricity prices. Because wind and solar farms have essentially zero fuel costs, they can undercut other sources, thereby decreasing the revenue for all generators, including the wind and solar farms themselves when their output is high.

What are the implications of the 'cannibalization effect' on the renewable energy market?

The 'cannibalization effect' leads to several implications. Primarily, renewable energy generators earn less money for each unit of electricity they sell, reducing their revenue. Secondly, this can create investment uncertainty, making it more difficult to attract funds for new renewable energy projects. Finally, governments may need to provide ongoing subsidies to keep renewable energy projects financially viable. These factors could slow down the transition to cleaner energy if not addressed through market reforms or other innovative solutions.

How does the 'cannibalization effect' influence cross-border energy markets in Europe?

The 'cannibalization effect' extends beyond local markets due to the interconnected nature of European electricity markets. Because countries share energy across borders, the impact of wind and solar power in one nation can affect electricity prices in others. This creates cross-border tensions and redistributes the benefits and costs of renewable energy, creating winners and losers among different countries depending on their renewable energy mix and energy trading arrangements.

What strategies can be used to address the 'cannibalization effect' and ensure a sustainable renewable energy future?

Addressing the 'cannibalization effect' requires a multi-faceted approach. Policymakers and industry leaders can consider a mix of market reforms, such as time-of-use pricing or capacity markets, to better reflect the value of electricity at different times. Infrastructure investments, like improved grid connections and energy storage solutions, can help manage the intermittent nature of wind and solar energy. Technological innovation, such as demand-side management, is also essential. The goal is to create a system where renewable energy can thrive economically without undermining its own value and accelerate the clean energy transition.