SolarPlaza Summit Iberia: Low Prices Send Spanish Solar Looking for Partners

June 18, 2024
6 min read
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Price cannibalization is not a nice term, and it’s long posed a problem for PV. Making things worse, the risk is inherent to the technology. 

When the sun shines, solar arrays of all shapes and sizes produce clean electrons. As a result, in electricity markets where there are large amounts of PV capacity, solar energy can end up depressing wholesale electricity prices. The result: trouble for solar developers as they try get their projects off the ground. 

The dynamic has been evident in sunny Australia throughout 2024. Melbourne-based energy economist Bruce Mountain observed in February how the country’s ever-growing fleet of rooftop PV is leaving little room for utility scale solar. 

“Rooftop solar has pulled prices down [during daylight hours], to the level that without storage large scale solar is going to battle for grid supply,” Mountain told me, while I was reporting for pv magazine Australia

Low Prices Hit Spain
As solar installations continue, the number of places where it is having a depressing effect on wholesale electricity prices is growing – as is its impact on the prospects of large-scale project developers. The challenge was front and center at the recent SolarPlaza Summit Iberia, where numerous panel discussions sought to find ways this challenge can be overcome. 

The event was held in Madrid on June 5, and while there is no doubt that Spain remains one of Europe’s most important solar hubs, depressed daytime power prices is an immediate concern to market participants.

Spain’s solar industry is coming off a high, after years of strong expansion. SolarPower Europe was anticipating a decline from 2022 to 2023 in installation volumes, from 8.4 to 8.2 GW – in its 2023-2027 market outlook. It is likely the industry association’s latest solar market report, set to be released on June 18, will show an even more pronounced decline. 

Top 10 Markets 2022-2023, Source: Solarpower Europe, 2023

The reason for the slump should surprise few who have been tracking wholesale power markets. After the eye-watering price peaks that occurred during the energy crisis sparked by Russia’s invasion of Ukraine, they have been steadily declining, and going negative with increasing frequency – a relatively novel development on the Iberian Peninsula. 

In countries with prodigious sunshine, like Australia and Spain, solar is making a large contribution to the falling power prices and fast becoming its own worst enemy.

“From 2016 through to six months ago, the [solar] sector was booming and nothing seemed to stop it,” said Lucía González Fernández, a partner and the head of energy at the international law firm Ontier. Speaking at the SolarPlaza Summit Iberia, Fernández noted that investor interest in solar has dampened.

“I am involved in [solar project] M&A transactions, and we are now seeing reduced investor interest.”

Fernández is well positioned to observe the trend. The Ontier website reports that she advised Iberia Solar on the sale of a portfolio of four PV projects in Spain with a capacity of 850 MW to Lightsource BP.

“In M&A transactions, they are looking more at the numbers of the projects than six months ago. The price has dropped, and some companies have changed their strategy and not invested in some technologies, and moved to batteries.”

From second to the left: Lucía González Fernández from Ontier, Roger Font from Sabadell, and Josefin Berg from S&P Global sitting on the Power Market Conditions panel.
Average Monthly Electricity Wholesale Price in Spain, Jan 2019-Apr 2024 (in EUR per megawatt/hour), Source: Statista/Ember

Role for BESS
Ways in which Spanish solar developers can overcome the current low wholesale electricity prices was another key theme at the SolarPlaza Summit Iberia. Large-scale battery energy storage systems (BESS) are a promising solution, able to absorb excess PV power at times of oversupply and discharge when prices are high. But the technology is at a relatively nascent stage in Spain. 

“We still have to figure out the financial model for BESS,” said Roger Font, the head of project finance EMEA for Banco Sabadell. “It is not easy to include a battery in a project as there is a lot of technical due diligence. We need to study it and work it out.”

Such hurdles have been relatively quickly overcome elsewhere, with Australia standing out as an example. Government tenders have been crucial in demonstrating to local lenders that large-scale energy storage projects can be bankable investments and help them overcome the risk of a relatively new technology. 

Aussie solar and energy storage market analysts SunWiz found that 1.41 GWh of large-scale storage was added the country’s electricity networks in 2023. The cumulative total is 2.6 GWh. Across all market segments, SunWiz tallies 5.97 GWh of batteries installed in Australia since 2015.

In December 2023, the Spanish government awarded 880 MW/1,809 MWh of energy storage, co-located with renewables, in the first tenders of their kind in the country. However, this is a comparatively meagre amount of capacity, and the projects won’t come online before 2025.

Spain is starting from a very low base when it comes to BESS. SolarPower Europe found in its “European Market Outlook for Battery Storage 2024-2028” report that Spain was well outside the top five EU markets for batteries in 2023. Notably, those five countries accounted for more than 80% of battery installations for the year. 

Top 5 European Annual Battery Storage Markets, 2023, Source: Solarpower Europe

PPAs in Flux
Power Purchase Agreements (PPAs) were also suggested as a potential refuge for Spanish solar project developers. While contracts signed with utilities were a feature of Spain’s PPA market in the past, today the shift is towards deals with corporate off-takers. 

“There has been a shift in the transactions that come to us,” said Font, the banker. “Because two years ago it was all traditional IPPs [Independent Power Producers], now it is a lot of corporate PPAs.”

Corporate solar power off-takers likely have a range of motivations, beyond price – including the ESG targets. But they are awake to falling wholesale power prices.

Climate Copy on the ground at the Palacio Neptuno in Madrid.

Analyst Josefin Berg said there was a glimmer of hope on the horizon, in terms of price. However, solar price cannibalization is still anticipated to be a feature of the market. 

“We expect electricity demand to increase through 2030 and prices will come up,” said Berg, who is a part of the clean energy team at S&P Global Commodity Insights. “But they are not here now.”

Berg said that S&P Global’s expectations for solar capture prices “are not that optimistic,” with 40% of Spain’s electricity now coming from PV. “40-50% of the solar hours were remunerated at €5/MWh. It’s getting tough.”

The Spanish large-scale marketplace is in a period of transition. Large-scale BESS could play an important role in both creating demand for electricity during daylight hours and bolstering solar’s prospects – growing the appetite for large scale solar, if you will, in the face of price cannibalization.  

Spain has a target of installing 22 GW of energy storage by 2030. The country’s large scale solar sector will be looking for that target to be increased, and its timeline brought forward – if the short-term challenges big PV is facing are not to become a long-term trend.

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