As renewable technologies become more cost-effective, they are increasingly displacing fossil fuel sources in the electricity market. Onshore wind a
As renewable technologies become more cost-effective, they are increasingly displacing fossil fuel sources in the electricity market. Onshore wind and solar PV are now cheaper than new fossil fuel plants almost universally, and often cheaper than existing fossil fuel plants. Prices for solar PV modules dropped by nearly 50% year-on-year in 2023 due to increased manufacturing capacity outpacing demand. With renewable expected to account for over 42% of global electricity generation by 2028, the traditional pricing mechanisms based on fossil fuels are likely to be disrupted.Prices for solar PV modules dropped by nearly 50% year-on-year in 2023 due to increased manufacturing capacity outpacing demand. With renewable expected to account for over 42% of global electricity generation by 2028, the traditional pricing mechanisms based on fossil fuels are likely to be disrupted.
The proportion of renewable energy in China is increasing, intensifying competition in the electricity market, which often leads to more competitive electricity prices. Since the marginal cost of renewable energy sources such as solar and wind is close to zero (with major costs concentrated in the initial construction and maintenance), the large-scale entry of these energies into the electricity market tends to drive down overall electricity prices. This is good news for end-users, as their electricity bills might decrease. However, the volatility of wind and solar energy can affect power supply, thereby increasing the challenges of maintaining the stable operation of the power system.
The expansion of renewable energy impacts electricity market pricing, which also involves changes in policies and market mechanisms. For example, many countries have introduced renewable energy subsidies and incentives to support the development of these resources. These policies not only encourage the expansion of renewable energy but also alter the pricing mechanisms of the electricity market. Additionally, as advancements in energy storage technology progress and become more widely applied, the issue of unstable renewable energy supply is expected to be alleviated, further solidifying its position in the energy market.
Although the cost of renewable energy is declining, investments in grid infrastructure remain necessary to ensure that the system can accommodate and operate new types of renewable energy. The costs of these infrastructure investments may be reflected in electricity prices, particularly at the early stages of the transition, where a temporary increase in electricity prices might be observed. Balancing the long-term effects of energy structure transformation with short-term economic pressures becomes an important issue for policymakers in this context."The widespread adoption of renewable energy is pushing electricity market prices down, while also introducing complexities in system operations and new policy challenges. In the future, as technology continues to advance and the market gradually adapts, it is expected that electricity pricing will become more stable and predictable.
