Europe has seen a record number of hours of negative electricity prices this year due to a mismatch between demand and supply as solar power generation surges, potentially helping to shift investment into much-needed storage solutions.
Wholesale electricity markets in most key European economies posted zero or negative prices for a record number of hours in the first five months of this year amid low demand. This means manufacturers have to pay more often to take out power or shut down their plants.
“One could certainly say that success eats its own offspring at this point,” Markus Hagel, an energy policy expert at Germany’s Trianel, told Reuters.
Strong hydro and nuclear generation have played some role in the oversupply, but Europe has also seen massive solar expansion.
Installed solar capacity in the European Union more than doubled to 263 GW between 2019 and 2023, according to SolarPower Europe. In 2023 alone, that equates to an extra 306,000 solar panels installed every day, the group said.
In the intraday market, it saw more European markets see prices decline at the lowest mid-day demand point.
Trianel told Reuters the company has invested in 800 megawatts (MW) of photovoltaic capacity and has a 2,000 MW project, but lower prices are forcing it to rethink how it sells electricity.
Solar boomed in part because it no longer required subsidies, as developers entered into power purchase agreements (PPAs) with buyers on fixed terms tied to wholesale electricity market prices.
This allowed for a faster and larger build than previous volume-limited auctions for government-backed payments.
But as prices fall, developers are increasingly returning to subsidy schemes, Hagel said.
Negative prices are nothing new for Germany, which hosts Europe’s largest capacity for fluctuating solar and wind generation, but 2024 is the first year Spain will experience them after several years of strong solar growth.
“It’s not something we’re concerned about at this point. We are concerned that this will happen again or may happen again over time,” said José María González Moya, CEO of renewables lobby APPA Renovables, noting that new PPA contracts are already on the wane.
“And yes, in a way, investment is slowing down. Not to stop, but to slow down,” Moya said.
Germany and Spain are still the leaders in the PPA market, said Jens Hollstein, head of consulting at PPA pricing platform Pexapark. However, solar power producers have been forced to sell their power at increasing discounts to continuous generators.
“The margin is getting thinner,” Hollstein said.
He expected a slowdown in investment if the development continued.
On the other hand, the electricity market now sees a greater difference between low- and high-cost hours, increasing the incentive to invest in storage, he added.
The key is increasing battery capacity
In its annual report, the International Energy Agency (IEA) highlighted the urgent need for energy storage.
“Developers who choose not to co-locate their wind and solar PV plants with battery storage or other sources of flexibility may experience a drop in potential revenue during peak generation – limiting profits and discouraging investment,” the IEA wrote.
The EU estimates that the bloc’s energy storage will need to more than triple from 2022 to 2030 to match a projected 69% renewable share of its electricity grid by then.
Norway-based renewable energy producer Statkraft, which operates across Europe, said it may divest some wind and solar projects but is likely to keep its battery assets.
“For batteries, higher volatility will be positive and prices will also be negative,” CEO Birgitte Ringstad Vartdal said, because batteries can be charged when prices are low, while output can be sold when prices are high.
“This is one of the reasons why flexible projects will be attractive,” added Ringstad Vartdal.
In addition to storing energy in batteries to deal with periods of oversupply, other options such as smart grids and artificial intelligence meters can help consumers optimize their electricity use.
Domestic end-users, battered by a spike in energy prices as a result of the Ukraine war, have so far enjoyed lower bills as they are often locked into long-term contracts.
Only those consumers who have invested in a heat pump, a charger for their electric car or a storage system can benefit from the negative prices, said a spokesman for the German association of local utilities VKU.
Those with fixed price contracts will only feel the positive impact of negative electricity prices after they have reduced average market prices over the long term.