By Nora Buli and Forrest Crellin
OSLO/PARIS (Reuters) – Europe has seen a record number of hours of negative power prices this year due to a mismatch between demand and supply as solar power generation soars, potentially helping to shift investment to storage solutions as needed.
Wholesale energy markets in most of Europe’s major economies showed zero or negative prices for a record number of hours in the first five months of this year, during periods of low demand. This means that producers have to pay more frequently to discharge energy or stop their factories.
“We could certainly say that, at the moment, success is consuming its own descendants,” Markus Hagel, an energy policy expert at German utility Trianel, told Reuters.
Strong hydroelectric and nuclear power generation played some role in the oversupply, but Europe has also seen a massive expansion of solar energy.
Installed solar capacity in the European Union more than doubled, to 263 GW, between 2019 and 2023, according to data from SolarPower Europe. In 2023 alone, that equates to 306,000 extra solar panels installed every day, the group said.
In the day-ahead market, this has seen more European markets experience price drops at the point of lowest demand in the middle of the day.
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 reconsider how it sells power.
Solar power grew in part because it no longer required subsidies, as developers agreed power purchase agreements (PPAs) with buyers on fixed terms indexed to wholesale power market prices.
This allowed for faster and larger development than previous limited-volume auctions for government-backed payments.
But as prices fall, developers increasingly turn to subsidy schemes, Hagel said.
Negative prices are nothing new for Germany, which hosts the largest volatile solar and wind power generation capacity in Europe, but 2024 is the first year Spain has seen them, following several years of strong solar power growth.
“It’s not something that worries us at the moment. What worries us is that this will repeat itself or could repeat itself over time,” said José María González Moya, general director of renewables lobby APPA Renováveis, adding that new contracts for CAE are already in decline.
“And yes, in some ways, investment is slowing down. It is not stopping, but slowing down,” said Moya.
Germany and Spain still lead the PPA market, said Jens Hollstein, head of consultancy at PPA pricing platform Pexapark. However, solar power producers have been forced to sell their power at increasing discounts to 24-hour generators.
“The margin is getting smaller,” Hollstein said.
He expected a slowdown in investment if development continued.
On the other hand, the energy market now registers a greater disparity between low and high price times, increasing the incentive to invest in storage, he added.
INCREASING BATTERY STORAGE IS KEY
The International Energy Agency (IEA) highlighted the urgent need for energy storage in an annual report.
“Developers who choose not to co-locate their wind and solar PV farms alongside battery storage or other sources of flexibility could see a drop in potential revenues during peak production – hurting profits and discouraging investment ,” the IEA wrote.
The EU has estimated that energy storage in the bloc will need to more than triple between 2022 and 2030, to meet projections of a 69% share of renewable energy in its electricity system by then.
Norwegian renewable energy producer Statkraft, which operates across Europe, said it could divest some wind and solar projects but would likely retain its battery assets.
“For batteries it will be positive to have higher volatility and also negative prices,” said CEO Birgitte Ringstad Vartdal, as batteries can be charged when prices are low, while production 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 AI-powered meters could also help consumers optimize their electricity consumption.
Domestic end-users, affected by rising energy costs following the war in Ukraine, have not yet benefited from lower bills because they are often locked into long-term contracts.
Only consumers who have invested in a heat pump, a charger for their electric car or a storage system can benefit from negative prices, said the spokesman for the German local public utilities association VKU.
Those with fixed price contracts will only feel a positive impact from negative energy prices after they have reduced long-term average market prices.
(Reporting by Forrest Crellin in Paris and Nora Buli in Oslo; additional reporting by Riham Alkousaa in Berlin, Pietro Lombardi in Madrid and Marek Strzelecki in Warsaw; Editing by Elaine Hardcastle)
