Although recent studies have shown that electricity systems with shares of wind and solar above 80\% can be affordable, economists have raised concerns about market integration. Correlated generation from variable renewable sources depresses market prices, which can cause wind and solar to cannibalize their own revenues and prevent them from covering their costs from the market. This cannibalization appears to set limits on the integration of wind and solar, and thus contradict studies that show that high shares are cost effective. Here we show from theory and with numerical examples how policies interact with prices, revenue and costs for renewable electricity systems. The decline in average revenue seen in some recent literature is due to an implicit policy assumption that technologies are forced into the system, whether it be with subsidies or quotas. If instead the driving policy is a carbon dioxide cap or tax, wind and solar shares can rise without cannibalising their own market revenue, even at penetrations of wind and solar above 80\%. Policy is thus the primary factor driving lower market values  ; the variability of wind and solar is only a secondary factor that accelerates the decline if they are subsidised. The strong dependence of market value on the policy regime means that market value needs to be used with caution as a measure of market integration.
Although recent studies have shown that electricity systems with shares of wind and solar above 80\% can be affordable, economists have raised concerns about market integration. Correlated generation from variable renewable sources depresses market prices, which can cause wind and solar to cannibalize their own revenues and prevent them from covering their costs from the market. This cannibalization appears to set limits on the integration of wind and solar, and thus contradicts studies that show that high shares are cost effective. Here we show from theory and with numerical examples how market incentives interact with prices, revenue and costs for renewable electricity systems. The decline in average revenue seen in some recent literature is due to an implicit policy assumption that technologies are forced into the system, whether it be with subsidies or quotas. If instead the driving policy is a carbon dioxide cap or tax, wind and solar shares can rise without cannibalising their own market revenue, even at penetrations of wind and solar above 80\%. The policy of subsidy is thus the primary factor driving lower market values , and this decline happens even for dispatchable low-emission technologies ; the variability of wind and solar is only a secondary factor that accelerates the decline if they are subsidised. The strong dependence of market value on the policy regime means that market value needs to be used with caution as a measure of market integration.
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contradict
contradicts
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policies
market incentives
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Policy
The policy of subsidy
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, and this decline happens even for dispatchable low-emission technologies