(Bloomberg) -- An oversupply of solar power in Spain has pushed prices so low this year that some projects may not be built due to a drop in profitability, according to Aurora Energy Research Ltd.
The excess solar production is so large that a boost in storage with new batteries may not be enough to fully improve the market’s economic outlook, the UK firm said in a study.
A surge in clean energy generation across Europe flooded grids in recent months, often pushing wholesale electricity prices below zero. While that can be good for consumes, it risks threatening the long-term viability of some photo-voltaic projects. Batteries are seen as being key to absorb excess generation during the day and distribute it at night, cutting the need for fossil fuel backups and ultimately stabilizing prices.
The oversupply in Spain is prompting “solar capture rates” — the average prices that generators are able to earn compared to the overall average energy price — to drop significantly, “reflecting a growing cannibalization issue as solar buildout continues” and that storage may only partially mitigate, according to Aurora.
The report draws its conclusion by comparing the Mediterranean country with California, with both markets getting about half of their power from renewable sources. But while batteries are still a small industry in Spain, the US state has so far added 11.2 gigawatts of storage. That hasn’t completely countered the steep price drop stemming from excess supply, and offers a glimpse of what may happen in Spain, Aurora said.
The European nation, which gets plenty of sunlight, saw power prices in April drop to the lowest in 11 years. The government aims to add 12.5 gigawatts of batteries and thermo-solar storage by 2030, comparable to the current capacity in California, whose area and population are akin to Spain’s.
It’s not the only similarity. In 2023, the US state needed constant production of 25 gigawatts on average to meet demand at any given time, compared to 26 gigawatts in Spain, according to calculations by Aurora. By the end of this year, both Spain and California will have more than 35 gigawatts of solar photo-voltaic installed capacity.
Although batteries in California have helped mitigate cannibalization, “the system still faces challenges from oversupply,” the report said. That could be replicated in Spain, where investments are “expected to shift toward storage,” Aurora said.
Still, while 98% of California’s 162-gigawatt pipeline of photo-voltaic projects is co-located with batteries, in Spain that’s the case for only 3.8% of the country’s 76 gigawatts of planned projects.
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