Solar PV cannibalization is costing German taxpayers billions of euros

The cannibalization of renewable energy has long been a topic of discussion, particularly in connection with the sharp growth in solar PV capacity in recent years. Rising installed solar PV capacity has a negative impact on the economics of these plants, as they achieve lower capture prices for the electricity they generate. In Germany, support for renewable energy has been financed from the federal budget for several years, rather than through the original charges paid by consumers. In the last quarter alone, the German government had to spend more than 5 billion euros supporting renewable energy, especially solar PV.

Germany continues to develop renewable energy, primarily solar and wind power plants. To meet its targets in this area, the country has been using an auction system for many years, in which project developers compete to secure minimum guaranteed prices for their projects. While electricity consumers paid for the support in the past, since 2022 Germany has covered these costs from the state budget.

Given the large volume of installed renewable capacity in Germany, particularly solar PV, cannibalization is becoming increasingly pronounced. This phenomenon involves spot electricity prices falling when renewable generation is high, which has a negative impact on the economics of operating these plants. This is also one reason why Germany continues to hold new auctions, through which new projects secure operating support.

Solar PV cannibalization has intensified significantly in recent years

The increasing cannibalization of renewable energy is also reflected in the amount of support paid from the German state budget. According to S&P Global, the German government had to spend 5.2 billion euros in the second quarter of this year to balance the country’s EEG account, which funds support for renewable energy.

Of this amount, 2.4 billion euros was accounted for by June alone. In June, the average capture price for electricity generated by solar PV plants was just 18.43 EUR/MWh, 61% lower than last year. According to S&P Global, this was the lowest capture price since May 2020, when market electricity prices plunged due to COVID-19 lockdowns.

For the second quarter as a whole, capture prices for solar PV in Germany fell year on year to just 23 EUR/MWh. This was less than a third of the average price on the German spot market, which stood at 69.76 EUR/MWh.

The increasing level of cannibalization is particularly evident in the ratio between the average prices achieved by solar PV plants. While spot electricity prices in Germany fell by less than 2 EUR/MWh year on year during the second quarter, the average capture price for solar PV fell by more than 15 EUR/MWh.

In Germany and other European countries, the development of solar PV in recent years has been accompanied by a sharp increase in the number of hours when electricity prices fall to zero or even turn negative. In recent years, Germany has restricted support for renewable energy during periods of negative prices in an effort to reduce their occurrence, but the tighter support rules apply only to new plants.