University of Mannheim: Renewable energy sources are more profitable than ever

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Investments in wind and solar power sources have long been considered as expensive and dependent on public subsidies. A new study by economists from the University of Mannheim shows that plants in good locations can now be operated profitably without subsidies. The reason for this: cost reductions through technological innovations have been able to overcompensate countervailing dynamics in the revenues of renewables.

Driven by government subsidies, the share of renewable energy in the electricity mix has been rising for years. The German Federal Environment Agency, for instance, recorded a share of 49 percent for the first half of 2022, an increase of around eight percentage points from the previous year.

However, subsidies for new wind and solar power plants have fallen drastically in recent years. At the same time, renewables are increasingly subject to a “cannibalization” effect in places where significant additions of wind or solar power capacity cause market prices to fall during hours when renewable sources are near peak capacity. Accordingly, industry analysts have warned about the possibility of wind and solar energy not becoming competitive with conventional power generation technologies for a long time.

A new study by the economists Prof. Dr. Gunther Glenk and Prof. Stefan Reichelstein, Ph.D. from the University of Mannheim now clears the doubt. Over the past decade, the costs of new wind and solar photovoltaic installations have declined much faster than the corresponding revenues. This dynamic has led to an increase in the profitability of renewables and has even made wind and solar plants in good locations the most profitable technologies for generating electricity.

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