Study finds solar power drives down electricity prices

A new study commissioned by Germany’s Solar Industry Association and conducted by consulting firm Enervis has revealed that rising solar generation was responsible for an average 15 percent reduction in electricity exchange prices in Germany last year. 

The study found that without the surge in solar power output, wholesale electricity prices would have been significantly higher on the German market. Low-marginal-cost solar generation displaced more expensive conventional generation, resulting in consumer savings across households, commercial and industrial users. 

According to the report, solar systems contributed billions of euros in cost reductions annually in Germany, and the reduction in prices showed an upward trend as solar capacity expanded. 

Background & Policy Implications

Germany has long supported solar photovoltaics (PV) through feed-in tariffs and incentives. The study’s authors warn that planned cuts to solar subsidies could hamper the expansion of PV capacity and erode the price-reducing benefits attributed to solar.

Enervis noted that sustaining the price-lowering effect of solar will require the country to adhere to its legally established PV expansion path, maintaining robust framework conditions for solar development. 

Broader Context

Economists attribute the effect to the so-called “merit-order” mechanism: because solar generation has near-zero marginal cost, it substitutes for more expensive fossil-fuel generation in the supply stack, thereby reducing market clearing prices.

While most of the data relates to the German market, similar analyses in other jurisdictions suggest that solar and wind generation can lead to lower wholesale electricity prices and reduced rates for consumers, as variable‐renewable penetration increases.

Limitations & Considerations

The study measured impacts on wholesale electricity exchange prices, which may not always translate fully to retail consumer bills due to fixed grid, network and policy-cost components. Previous academic work cautions that at high renewable penetration, the price-reducing effect can diminish.
Furthermore, the study underscores that the magnitude of price reduction varies by time of day, geographic region and existing generation mix. Enervis’s findings reflect average market effects and may differ in regions with distinct energy structures.

Significance

For policymakers and regulators, the study strengthens the economic argument for accelerating solar deployment as part of cost-effective energy transition strategies. By illustrating a measurable benefit in market pricing from solar generation, the findings may bolster support for sustained or enhanced solar policy frameworks.

For industry stakeholders, the research provides evidence that solar investment yields system-wide benefits, potentially influencing decisions on subsidies, grid integration, and project development.

As solar capacity continues to rise in Europe and globally, observers will monitor how renewable energy growth interacts with electricity market prices, grid flexibility, storage integration and policy structures. This German study offers a compelling indicator that solar can reduce electricity prices, but the broader translation into long-term cost savings for consumers will depend on sustained policy support, grid investment and market reform.