Solar and wind energy prices are plummeting to record lows

Europe has experienced negative energy prices several times this year as the rapid pace of solar and wind development outstrips the region’s ability to cope with excess supply. According to consultancy ICIS, electricity prices fell to negative values ​​for 7,841 hours in the first eight months of 2024, sometimes as low as -$22 per megawatt hour. The main culprit is the solar energy sector, which is caused by inconsistencies in electricity supply due to its instability. While the introduction of utility batteries could help address this challenge, it may take several years and in the meantime countries will have to deal with these price drops.

In recent decades, countries across Europe have invested heavily in wind and solar projects as the price of these clean energy sources has fallen as installation costs have fallen. The cost of solar photovoltaics (PV) is approx dropped by 90 percent over the last decade, while the cost of offshore wind energy has fallen by 70 percent, and batteries by over 90 percent. This is largely due to the surge in wind and solar energy production during this time. Comparison data increasing world production in relation to costs wind and solar power shows that costs fall by about 20 percent every time global cumulative production capacity doubles. Over the last forty years, solar energy has gone from being one of the most expensive energy sources to one of them the cheapest.

However, as countries increase their renewable energy capacity, they face financial challenges during the transition period. Solar and wind energy are highly variable and produce energy when the sun is shining and the wind is blowing, not at night or on calm days. This means that on days when wind and solar power generate large amounts of electricity, the market may become heavy saturated with cheap power. This significantly reduces the price of electricity, sometimes to negative values. Meanwhile, during periods of low or no production, electricity is not supplied to the grid, so the grid relies on other, more stable energy sources such as natural gas.

This has some advantages, as customers can enjoy lower energy prices in places where utilities offer off-peak promotions. Utilities are increasingly encouraging customers to use more energy during high-production hours and thus reduce their energy consumption during peak and low-production hours. This can be done via offering customers lower energy prices at certain times of the day, forcing them to use energy-hungry devices or to charge electric vehicles when plenty of clean energy is available.

However, the unreliability of many clean energy sources poses a clear challenge to utilities as they strive to deliver stable energy to consumers. While investment in wind and solar projects continues to grow and governments around the world pursue a green transition by providing financial incentives, some operators are putting projects on hold due to energy price uncertainty. Several producers across Europe have been forced to cut electricity production or pay for load shedding due to grid saturation, discouraging them from expanding wind and solar farms.

This shows a clear need for increased energy storage as renewable energy capacity increases. International Energy Agency (IEA) he stated“Developers who choose not to locate their wind and solar parks next to battery storage or other sources of flexibility could see potential revenues decline during periods of peak generation, hampering profits and discouraging investment.”

The EU expects that energy storage will need to more than triple between 2022 and 2030 to meet the forecast share of electricity from renewable sources of 69% by the end of the decade. The deployment of energy storage systems can be further supported by greater investment in smart grids and artificial intelligence meters to better manage energy efficiency for consumers.

IEA Special report on batteries and a safe energy transition states that battery storage was the fastest-growing energy technology in 2023, with its use more than doubling year over year. A total of 42 GW of batteries have been added globally. However, the pace of battery deployment is not adapted to the increase in renewable energy generation capacity around the world, which results in fluctuations in energy prices in countries with a large share of green energy in the grid.

To address negative wind and solar prices, producers must take proactive steps to mitigate the impact of this challenge. This could be done by investing in battery energy storage or working with utilities to switch consumers from fixed energy contracts to variable energy contracts to encourage them to reduce their energy use during low production hours. This should be supported by stronger national policies on battery storage and the deployment of clean technologies to strengthen electricity grids by governments around the world.

Author: Felicity Bradstock for Oilprice.com

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