Too much of a good thing? Spain’s green energy may exceed demand

The patchwork plains of Castilla-La Mancha in central Spain were once famous for their windmills.

But now it is wind turbines, their modern equivalent, that are much more visible on the panorama of the region.

This landscape is overlooked by the 28 huge turbines of the Sierra del Romeral wind farm, perched on the hills near the historic city of Toledo.

Operated by Spanish firm Iberdrola, they are part of a trend that has accelerated the production of renewable energy in Spain over the past half-decade, making the country a major part of the industry.

Spain’s total wind power generation capacity, which has been the main renewable source in recent years, has doubled since 2008. Meanwhile, solar power capacity has increased eightfold over the same period.

This makes Spain the EU member state with the second largest renewable energy infrastructure, after Sweden in first place.

Earlier this year, Spain’s Socialist Workers Party Prime Minister Pedro Sánchez described his country as “the driving force behind the energy transition on a global scale.”

The boom began soon after the arrival of a new government led by Mr. Sánchez in 2018, when regulatory hurdles were removed and subsidies for renewable installations were introduced. The pandemic further accelerated the trend domestically.

“The impact of Covid has been very positive for our sector,” says José Donoso, CEO of UNEF, the Spanish photovoltaic association that represents the solar panel sector. “People saved money, took time to think about what to do with it, and many of them decided it was better to invest in their roof than in their bank.”

Meanwhile, the government has unveiled ambitious new targets, including covering 81% of Spain’s energy needs with renewables by 2030.

Behind this success story, however, there are concerns within the electricity industry caused by an imbalance between supply and demand and sometimes an excess of electricity.

Although Spain’s economy has rebounded strongly from the trauma of the Covid pandemic and is growing faster than all other major economies in the bloc, electricity consumption has been falling in recent years.

Last year, electricity demand was even lower than in the pandemic year of 2020 and the lowest since 2003.

“Up until 2005, we saw that when GDP increased, electricity demand increased more than GDP,” says Miguel de la Torre Rodríguez, head of system development at Red Eléctrica (REE), which operates Spain’s national grid.

Lately, he says, “we’ve seen demand grow less than GDP. What we’re seeing is a decoupling of energy intensity from the economy”.

There are several reasons for the recent drop in demand. These include an energy crisis triggered by Russia’s invasion of Ukraine in 2022, which has caused businesses and households across Europe to cut back on consumption.

Energy efficiency has also improved and become more common.

Increased use of renewable energy has also contributed to reduced demand for electricity from the national grid.

Mr. Rodríguez says that during daylight hours, when solar output is particularly strong, the balance between supply and demand can be skewed, impacting prices.

“Since the energy system must always be in balance – demand must equal production – this means there was excess production during those hours,” he says.

“That pushed prices down, especially during certain hours when prices were zero or even negative.”

While such low prices are welcome for consumers, they pose a potential problem in terms of attracting investment to the industry.

“This can make it difficult for investors to increase their investment in new electricity based on renewable energies,” says Sara Pizzinato, renewables expert at Greenpeace Spain.

“This can be an obstacle to the energy transition.”

Concerns that Spain has a surplus of electricity have led to talk of the need to speed up the “electrification” of the economy, which includes moving it away from fossil fuels. The Sánchez government has set a target of 34% of the economy being dependent on electricity by 2030.

“This process is slow and we need to speed it up,” says UNEF’s José Donoso.

“Electricity is the cheapest and most competitive way to produce clean energy.

“We need devices that use electricity instead of fossil fuels.”

A transition to full reliance on electricity is considered unrealistic, as some important industries such as chemicals and metals will find this transition difficult.

But Mr. Donoso and others see a lot of room for faster electrification. For example, Spain lags behind many of its European neighbors in the installation of heat pumps in homes and the use of electric cars, which only make up about 6% of vehicles on the road.

Ms Pizzinat agrees that electrification is key, but says there are other ways to tackle the supply and demand problem, including faster decommissioning of nuclear plants and increasing energy storage capacity.

He says: “We need to get more people and more industries involved in demand-side management to provide the flexibility needed in the system to better match production and demand day and night.”