Falling wholesale power prices due to the growth of renewables could, if unchecked, jeopardise investment in additional capacity in coming years, according to new research from Cornwall Insight.

The report says wholesale power prices are becoming increasingly important to the investment case for new renewables projects due to the withdrawal of subsidies through the Feed-in Tariff and Renewables Obligation schemes, as well as the cap on spending in future Contracts for Difference auctions.

The absence of fuel costs means existing wind and solar generation is extremely competitive in the wholesale market, “squeezing out” higher cost conventional generation and “depressing” prices when output is high. As they are usually paid subsidies whenever they are generating, they can often continue to earn money even when the power price is negative.

According to the analysis, this “price cannibalisation” effect is projected to reduce wholesale revenues for a typical 10MW onshore wind farm by 34 per cent between 2018 and 2033. A typical 5MW standalone solar farm is expected to see its revenues fall by 22 per cent over the same 15-year period.

The paper asks how new renewable projects are expected to be financed without access to subsidies when wholesale power prices are also declining. It questions what effect price cannibalisation will have on the economic viability of flexible capacity such as battery storage.

“As the government moves to review its Electricity Market Reform framework, the potential of this effect has largely gone under the radar and merits serious consideration as it could reshape the economics of the sector,” said Cornwall Insight chief executive Gareth Miller.