IDEAS home Printed from https://ideas.repec.org/a/ers/journl/vxxviiiy2025i3p971-991.html
   My bibliography  Save this article

The Renewable Energy Paradox: Second-Generation Economic Challenges in the Global Energy Transition

Author

Listed:
  • Rafal Cieslik

Abstract

Purpose: This paper analyzes the "second-generation challenges" of the global energy transition, moving beyond the initial success of cost reduction. It investigates the interconnected problems of market value erosion due to price cannibalization, the widening investment gap in developing economies, the evolution of policy towards active market shaping, and the critical need for electricity market redesign to ensure stability in high-renewable systems. Design/Methodology/Approach: This paper, based on a systematic review and comparative analysis of data from leading international agencies, analyzes the complex interplay between market value erosion, investment risk in developing economies, and the evolution of policy instruments. Findings: The results indicate that: (1) price cannibalization, resulting from the merit-order effect, poses a fundamental threat to the profitability of renewable energy (RE) projects, necessitating a shift from the LCOE metric to a more holistic value-adjusted indicator (VALCOE); (2) the global capital divide is primarily driven by a differentiated weighted average cost of capital (WACC), and the effectiveness of de-risking instruments is highly dependent on regional context; (3) policy instru-ments, such as auctions with Contracts for Difference (CfDs) and non-price crite-ria (NPCs), are transforming the role of the state from a passive subsidizer to an active market architect; and (4) systems with high penetration of variable renew-able energy (VRE) require a fundamental market redesign toward a service-based model that explicitly remunerates flexibility and firm capacity. Practicaal implementations: Originality/Value: The global energy transition has entered a new, more complex phase. While rec-ord-breaking deployments and declining levelized costs of energy (LCOE) signal the successful conclusion of the first phase of the transition, a new set of "second-generation challenges" has emerged.

Suggested Citation

  • Rafal Cieslik, 2025. "The Renewable Energy Paradox: Second-Generation Economic Challenges in the Global Energy Transition," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 971-991.
  • Handle: RePEc:ers:journl:v:xxviii:y:2025:i:3:p:971-991
    as

    Download full text from publisher

    File URL: https://ersj.eu/journal/4087/download
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ers:journl:v:xxviii:y:2025:i:3:p:971-991. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marios Agiomavritis (email available below). General contact details of provider: https://ersj.eu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.