The Misconception About Renewables in the Market
The US power sector is underestimating the game-changing impact of renewable energy on power generation. A recent German study (Weidlich et al., 2025) suggests that the next casualty of this shift could be base load power generation. The study aimed to determine if Germany could decarbonize its economy within two decades by solely investing in renewables, and the answer was a resounding 'yes'—with a few caveats. While the concept of a fully decarbonized power system in twenty years may not seem groundbreaking, the study offers a comprehensive investment framework for understanding the integration and consequences of a grid dominated by renewables.
The study outlines four key components for a fully functioning, decarbonized power grid: 1) a significant increase in renewable investments (solar and wind), 2) a robust and adaptable grid with enhanced transmission capabilities, 3) a range of short and long-duration battery storage options, and 4) demand-side flexibility. These suggestions are not groundbreaking, but they are essential. Increasing renewable energy and transmission infrastructure is a given, and adding more batteries for off-peak needs makes sense. Moreover, with the rise of large commercial loads like data centers, demand-side management becomes more feasible and attractive.
But there's a catch. Building a decarbonized grid as envisioned would render all base load power plants economically obsolete. Even more concerning, all new power-generating technologies, including fossil, nuclear, and geothermal, would be financially undermined by the increasing adoption of renewables and demand flexibility. Why? Because solar and other renewable resources can provide power more affordably and cleanly. Other power sources would struggle to compete, especially during off-peak hours, where the revenue generated might not cover the costs of maintaining large base load power plants.
This is not just a theoretical concern. The study's conclusion is clear: large-scale renewable deployment will decimate the economics of base load power generation, significantly impacting future capital allocation and stranded asset risks for the power generation sector. This economic reality is not unique to Germany but likely applies to other Western economies as well.
Renewable energy sources like wind and solar consistently outperform conventional fossil-fired facilities in the economic arena. With nearly zero operating expenses, they leave fossil-fueled power plants, burdened by high fuel costs, in the dust. Solar power, driven by chemical reactions, continues to become more efficient and cost-effective, while fossil-fueled technology remains expensive and volatile. The study highlights that gas-fired power plants might offer some economic value, but new nuclear plants are too costly to be relevant in this context.
The critical financial question is whether our recently built base load power generating facilities are destined to become 'stranded assets,' rendered economically unviable by superior, cheaper power-producing technologies. This is a tipping point issue. If renewables and batteries disrupt the power market beyond a certain threshold, large base load power stations could face economic instability. The German study concludes that while a decarbonized grid is achievable, it will financially devastate existing base load power plants.
The study's authors state, 'System level modeling for Europe reveals that new base load plants are not essential for a secure, net-zero grid. The crucial question is whether they can be economical in a market dominated by low-cost renewables.' This statement implies that these plants are already economically unviable. Furthermore, the study suggests that renewables will not only meet incremental electricity demand but also replace legacy equipment, potentially doubling or tripling the demand for renewable energy assets over two decades. Ultimately, this is an economic issue with far-reaching implications.
