Analysis: Europe’s Solar Power Surge Affects Prices and Reveals Storage Needs – By Reuters

By Nora Buli and Forrest Crellin

OSLO/PARIS – Europe has recorded an unprecedented number of hours with negative power prices this year, driven by an imbalance between supply and demand as solar energy generation surges. This trend may redirect investments toward much-needed energy storage solutions.

In the first five months of the year, wholesale power markets across many key European economies recorded zero or negative prices during periods of low demand. As a result, energy producers are increasingly compelled to pay to dispose of excess electricity or to halt operations at their plants.

"One could certainly say that, at this point, success is consuming its own offspring," remarked Markus Hagel, an energy policy expert at German utility Trianel.

The combination of high hydro and nuclear power generation has contributed to the oversupply, alongside a significant increase in solar power capacity.

According to data from SolarPower Europe, installed solar capacity in the European Union more than doubled from 2019 to 2023, reaching 263 GW. In 2023 alone, this translates to the installation of approximately 306,000 solar panels each day.

In the day-ahead market, many European markets have experienced price declines during midday when demand is at its lowest.

Trianel reported that it has invested in 800 megawatts (MW) of photovoltaic capacity and has a project pipeline of 2,000 MW. However, the declining prices are forcing the company to rethink its power sales strategy.

The rapid growth of solar power has been partly fueled by the removal of subsidies, as developers entered into power purchase agreements (PPAs) with fixed terms linked to wholesale market prices. This allowed for a faster expansion compared to previous government-backed payment schemes.

Nonetheless, as prices continue to decline, some developers are reconsidering returning to subsidy financing, according to Hagel.

While negative pricing has been a familiar issue in Germany, which has the largest share of variable solar and wind generation, 2024 marks the first time Spain is experiencing this phenomenon after several years of robust solar growth.

"It is not something that worries us at the moment. What does concern us is the possibility of it becoming a recurring issue," stated José María González Moya, director general of the renewable energy lobby APPA Renovables, noting a decline in new PPA contracts.

Moya acknowledged a slowdown in investments, saying, "Not stopping, but slowing down."

Germany and Spain continue to lead the PPA market, according to Jens Hollstein, head of advisory at a PPA pricing platform. However, solar producers are finding themselves selling power at greater discounts compared to traditional, continuous generators.

"The margin is getting thinner," he noted, predicting a slowdown in investments if the current trends persist.

Conversely, the power market is witnessing an expanding gap between low and high pricing periods, thereby increasing the appeal of investing in storage solutions.

The International Energy Agency (IEA) has underscored the urgent need for energy storage in its annual report. The agency indicated that developers not co-locating wind and solar projects with battery storage or other flexible solutions might face dwindling revenue potential during peak generation periods.

The EU projects that energy storage capacity will need to triple from 2022 to 2030 to accommodate a forecasted 69% share of renewable energy in its electricity system by that time.

Norwegian renewable energy producer Statkraft, which operates throughout Europe, has indicated it might divest certain wind and solar projects but plans to retain its battery assets.

"For batteries, greater volatility and negative prices will be beneficial," commented CEO Birgitte Ringstad Vartdal, explaining that batteries can be charged at low prices and sold when prices peak. "This is one reason why flexible projects will be attractive," she added.

In addition to utilizing batteries to manage excess supply, alternatives like AI-driven smart grids and meters could also assist consumers in optimizing their energy use.

Yet, residential consumers, who have been impacted by rising energy costs following the Ukraine conflict, have not yet benefited from lower prices due to being locked into long-term contracts.

Only those who have invested in heat pumps, electric vehicle chargers, or storage systems can take advantage of negative power prices, according to a representative from Germany’s local utilities association. Consumers on fixed-price contracts will only see the impact of negative prices reflected in their bills once average market prices drop over the long term.