Abstract
Increasing variable renewable energies with zero marginal cost cause the decline of wholesale electricity prices and undermine their own value by “cannibalization effect”. While capital costs of renewable energies are expected to decline, their income is also to decrease because of declined wholesale electricity prices. This study integrated GIS (geographic information system) model that assesses business feasibility into an optimal power generation mix model that assess wholesale electricity prices. By developing an integrated model, it is possible to assess potential installation capacity of solar and wind energy by considering both economic rationality and land use restrictions. In the case of Japan, this study revealed that increasing solar and wind energies cause the significant decline of wholesale electricity prices in specific electric network area such as Hokkaido. Even if capital costs of these energies decrease through learning effect, economic potential of installed renewable capacities is significantly limited if business feasibility is considered. Thus, the decline of electricity prices by cannibalization effect can seriously stagnate installation of both solar and wind energies. This study implies that further cost reduction faster than previous trend is needed to realize “subsidy-free” energy sources when cannibalization effect is considered.
