Renewable Energy Investments Under Cannibalization: A Semi‐Systematic Review

ABSTRACT

The valuation of renewable energy investments conventionally assumes that electricity prices are exogenous, an assumption that fails once wind and solar reach a substantial share of the electricity supply. Because wind and solar generation is highly correlated across producers, large‐scale deployment depresses wholesale electricity prices during periods of high renewable output, reducing project revenues, a phenomenon known as revenue cannibalization. This review synthesizes the literature on renewable energy investment in the presence of revenue cannibalization, spanning investment appraisal methodologies, the diagnosis of cannibalization, and the modeling of mitigation strategies. Our analysis reveals that many valuation methods frequently neglect this endogenous price risk, and that existing research lacks an integrated framework for evaluating mitigation strategies, such as storage and sector coupling, from an investor's perspective. We propose a two‐level framework to bridge this gap between project‐level valuation and systemic market risk.