Too much of a good thing? Green energy in Spain may exceed demand

The patchwork plains of Castile-La Mancha in central Spain were once famous for their windmills.

But now wind turbines, their modern equivalent, are much more visible on the region’s skyline.

The 28 huge turbines of the Sierra del Romeral wind farm, located in the hills near the historic city of Toledo, overlook this landscape.

Operated by the Spanish company Iberdrola, they are part of a trend that has accelerated renewable energy production in Spain over the last half-century, making the country a significant presence in the industry.

The total capacity of wind energy in Spain, which has been its main renewable source in recent years, has doubled since 2008. Meanwhile, solar energy production capacity has increased eightfold over the same period.

This makes Spain the EU member state with the second largest renewable energy infrastructure, after Sweden.

Earlier this year, the Prime Minister of the Spanish Socialist Workers’ Party, Pedro Sánchez, described his country as “a driving force of the energy transition on a global scale.”

The boom began shortly after the new government under Sánchez took power in 2018, with the removal of regulatory obstacles and the introduction of subsidies for renewable energy installations. The pandemic has further accelerated this trend at the national level.

“The impact of Covid has been very positive on our sector,” says José Donoso, CEO of UNEF, the Spanish Photovoltaics Association, which represents the solar panel sector. “People were saving money, wondering what to do with it, and many of them decided it was better to invest it on the roof than in the bank.”

Meanwhile, the government has introduced new, ambitious targets, including covering 81% of Spain’s electricity demand from renewable sources by 2030.

However, behind this success story lies concerns in the energy industry due to an imbalance between supply and demand, sometimes manifesting itself in a surplus of electricity.

Even though the Spanish economy has recovered strongly from the trauma of the Covid pandemic and is growing faster than all the bloc’s other major economies, electricity consumption has been falling in recent years.

Last year, the demand for electricity was even lower than that observed in the pandemic year of 2020 and the lowest since 2003.

“By 2005, we saw that as GDP increased, electricity demand increased more than GDP,” says Miguel de la Torre Rodríguez, director of systems development at Red Eléctrica (REE), the company that operates Spain’s national grid.

More recently, he says, “we have seen that demand has grown less than GDP. We are seeing a decoupling of energy intensity from the economy.”

There are several reasons for the recent drop in demand. These include the energy crisis triggered by Russia’s invasion of Ukraine in 2022, which caused businesses and households across Europe to reduce energy consumption.

Energy efficiency has also improved and become more common.

The increased use of renewable energy also contributed to reducing the demand for electricity from the national power grid.

Rodríguez says that during the day, when solar energy production is particularly high, the balance of supply and demand can be disturbed, which will impact prices.

“Since the power system must always maintain balance – demand must equal generation – this means there was a surplus of generation during these hours,” he says.

“This caused prices to drop, especially during certain hours when prices were zero or even negative.”

While such low prices are welcomed by consumers, they potentially pose a problem in attracting investment into the industry.

“This may make it difficult for investors to increase investment in new electricity based on renewable energy sources,” says Sara Pizzinato, renewable energy expert at Greenpeace Spain.

“This could be a bottleneck in the energy transition.”

Concerns about excess electricity in Spain have sparked a debate about the need to accelerate the “electrification” of the economy away from fossil fuels. The Sánchez government has set a goal of making 34% of the economy dependent on electricity by 2030.

“This process is progressing slowly and we need to speed it up,” says José Donoso of UNEF.

“Electricity is the cheapest and most competitive way to produce clean energy.

“We need facilities that use electricity instead of fossil fuels.”

A shift to complete reliance on electricity is seen as unrealistic because some important sectors, such as chemicals and metals, will find the transition difficult.

But Donoso and others see big opportunities for faster electrification. For example, Spain lags behind many of its European neighbors when it comes to installing heat pumps in homes and using electric cars, which only make up about 6% of vehicles on the road.

Ms. Pizzinato agrees that electrification is key, but says there are other ways to solve the supply and demand dilemma, including phasing out nuclear plants more quickly and increasing energy storage options.

He says: “We need to engage more people and more industries in demand management to make sure the system has the flexibility needed to better match generation and demand day and night.”