Germany has too many solar panels and causes negative energy prices

• SEB Research shows that more photovoltaic capacity has been installed in Germany than required by consumer demand.
• During peak solar production hours, manufacturers have reduced prices by 87% in the last 10 days.
• In fact, energy prices on the commodity market fall to negative levels during these hours.

Sunny days in Germany mean gray clouds for the viability of solar energy, as the country’s plunge into renewable energy sources has left it with too much energy.

According to a SEB Research note, over the past 10 days, solar producers have had to agree to an 87% price cut during production hours. In fact, when production peaks, prices fall well below zero.

The resulting price was an average of €9.1 per megawatt hour, well below the €70.6 paid during non-solar hours.

“This is what happens to energy prices when the volume of unregulated energy becomes as large or greater than demand: prices fall when unregulated energy produces the most,” the Swedish bank wrote on Tuesday.

Last year’s record wave of solar installations is “destroying” prices in Germany as supplies outstrip consumption. While total solar module capacity exceeded 81.7 gigawatts by the end of 2023, demand load only reached 52.2 gigawatts, noted Bjarne Schieldrop, SEB’s chief commodity analyst.

In fact, the gap between the two increases even more in the summer, a season of peak production and lower demand.

This also means that consumers do not necessarily benefit from low prices because they tend to use more energy during non-sunny hours.

Schieldrop said that if new installations are not supported through subsidies or power purchase agreements, limited profitability could ultimately halt solar expansion in Germany.

Instead, attention is likely to focus on improvements that will allow greater use of the energy produced, such as investments in batteries and grid infrastructure.

“This will exhaust the availability of ‘free energy’ over time and push solar prices higher again,” Schieldrop wrote. “This will ultimately pave the way for solar efficiency to increase again.”

The supply and demand imbalance is not a new problem for Germany, and it is not the only country experiencing it. Over the past year, the European market has been rushing to install photovoltaics, an urgent step after Russia cut off energy supplies to the continent.

A glut of green energy supplies in Europe – further exacerbated by the development of wind turbines and nuclear power plants – has caused previous cases of negative price declines.

This does not actually mean that consumers are reimbursed for their electricity consumption because they do not pay the market price. Instead, rates are usually agreed in advance.