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Europe's surging solar sector set for cannibalization risk

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By illuminem briefings

· 2 min read

illuminem summarizes for you the essential news of the day. Read the full piece here in Reuters or enjoy below

🗞️ Driving the news:  The rapid growth in solar supply capacity throughout Europe's electricity grids is beginning to erode producer profitability
• The phenomenon, known as the renewables cannibalization effect, is due to surplus power from solar sites depressing wholesale electricity prices, leading to utilities earning shrinking revenues from renewables

🔭 The context: Europe's utilities set a record in June by generating 10.4% of their electricity from solar sources, according to Ember
• This milestone, which doubles the share of solar in the generation mix since 2018, underlines the significant strides Europe is making in its energy transition efforts

⏭️ What's next: In Germany, Europe's top solar producer, the capture rate might decline from around 94% currently to less than 80% by 2026 during peak production periods and even to under 50% during the summer by 2029
• Solar producers should prepare for the extra competition from other solar sources

📚Science 101: Capture rates and prices are key factors that determine how much a power producer can earn from selling electricity over any given period
• The capture rate is a measure of the capture price divided by market price available
The capture price is a weighted average price during which the generation asset produces electricity

🌍 Why it matters for the planet: This rapid expansion of solar capacity is part of Europe's concerted effort to transition away from fossil fuels and towards renewable energy sources to combat climate change
• This transition is altering Europe's electricity markets, enabling utilities to conserve natural gas and maximize volumes of renewable power, a crucial step in reducing greenhouse gas emissions

💬 One quote: "Most European utilities are still predominantly focused on trying to replace fossil fuel generation assets with renewables, so may not have dwelt much on the prospect of cannibalization"  (Gavin Maguire, Global Energy Transition Columnist)

📈 One Stat: Wind and solar sites accounted for roughly 19% of total electricity generation over the first half of 2023, up from 14% in 2021. Meanwhile, natural gas's share decreased from nearly 26% in 2021 to 24.7%

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