Price Cannibalization Effect on Long-Term Electricity Prices and Profitability of Renewables in the Baltic States

Paulius Kozlovas (), Saulius Gudzius, Audrius Jonaitis, Inga Konstantinaviciute, Viktorija Bobinaite, Saule Gudziute and Gustas Giedraitis
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Paulius Kozlovas: Department of Electrical Power Systems, Kaunas University of Technology, K. Donelaičio g. 73, LT-44249 Kaunas, Lithuania
Saulius Gudzius: Department of Electrical Power Systems, Kaunas University of Technology, K. Donelaičio g. 73, LT-44249 Kaunas, Lithuania
Audrius Jonaitis: Department of Electrical Power Systems, Kaunas University of Technology, K. Donelaičio g. 73, LT-44249 Kaunas, Lithuania
Inga Konstantinaviciute: Department of Electrical Power Systems, Kaunas University of Technology, K. Donelaičio g. 73, LT-44249 Kaunas, Lithuania
Viktorija Bobinaite: Laboratory of Energy Systems Research, Lithuanian Energy Institute, Breslaujos str. 3, LT-44403 Kaunas, Lithuania
Saule Gudziute: DTU Wind and Energy Systems, Technical University of Denmark, 2800 Kgs. Lyngby, Denmark
Gustas Giedraitis: Faculty of Mechanical, Aerospace and Civil Engineering, University of Manchester, Oxford Rd, Manchester M13 9PL, UK

Sustainability, 2024, vol. 16, issue 15, 1-23

Abstract: This paper aims to evaluate price cannibalization effects in forecasts of long-term electricity prices and substantiate their relevance on the profitability of renewables in the Baltic States from 2024 to 2033. Statistical data analysis, literature review, scenario method, and PLEXOS modeling were applied. Five scenarios were analyzed for developing renewable energy sources (RES) and load in Lithuania. In contrast, scenarios for Estonia and Latvia were based on assumptions derived from the countries’ national RES strategies. The results showed that the increase in RES capacities will halve electricity market prices from around 130 EUR/MWh in 2024 to 58 EUR/MWh in Latvia, 60 EUR/MWh in Estonia, and 60–77 EUR/MWh in Lithuania in 2033. In time-waving, the absolute and relative price cannibalization effects of renewables were found. In 2033, the loss of revenue from solar photovoltaic (PV) generators was estimated to be 5.5–17.0 EUR/MWh in Lithuania, 7.1 EUR/MWh in Latvia, and 5.6 EUR in Estonia. The case of onshore wind demonstrated revenue losses of 10.5–22.0 EUR/MWh in Lithuania, 12.0 EUR/MWh in Latvia, and 10.0 EUR/MWh in Estonia. After 2029, revenues received by RES electricity generators could not guarantee project profitability; therefore, market flexibility options will be required. The key innovative strategy to mitigate the price cannibalization effect is the demand-side response when leveraging demand flexibility. Typically, this is achieved by sending price signals to the consumers who, if they have any, shift their demand to lower price periods. This is easily applied within HVAC systems, smart electric vehicle charging, and smart home appliance usage. Such behavior would allow the price cannibalization effect to be decreased.

Keywords: renewables; scenario method; price cannibalization effect; profitability; Baltic States (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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