One of the most common statements in energy debates is: “renewables lower electricity prices”
It is true. But only partially.
To understand how electricity prices are actually formed, we need to look at the core mechanism of European power markets: the merit order.
At each hour, generation technologies are ranked according to their marginal cost.
Renewables — solar and wind — have near-zero marginal costs, so they enter the market first.
As demand increases, more expensive technologies are dispatched.
The last unit needed to meet demand — the so-called marginal plant — sets the price for all.
In many cases, this marginal plant is gas-fired generation.
This means that renewables do not directly set the price, but they strongly influence who does.
When renewable generation is high, fewer gas plants are needed. In some cases, gas is completely pushed out of the market.
Result: prices decrease.
When renewable generation is low: gas re-enters the system, prices increase
This explains why electricity prices can be very low at certain times and very high at others.
The growing share of renewables has two key effects:
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Lower average prices
Over the long term, low marginal cost generation pushes average prices downward.
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Higher volatility
In the short term, variability in production increases price fluctuations. And it is precisely this volatility that is reshaping energy markets.
On one side, it creates risks for those who cannot manage it.
On the other, it creates opportunities for flexible assets — such as storage.
For this reason, the real question is not whether renewables lower prices or not.
The real question is: how do they reshape the structure of the market?
And more importantly: how do they redefine the role of other technologies within the system?
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