In the first five months of 2024, Europe has seen a record number of negative tariff hours this year due to a mismatch between supply and demand as solar power generation has soared, including, for the first time, in Spain.
For the power industry, the phenomenon of negative tariffs has become commonplace under the market-based trading of electricity. Especially in recent years to photovoltaic as the representative of the rapid growth of clean energy, every summer at noon peak power generation time, negative tariff phenomenon is more and more frequent, the length is also longer and longer.
To put it simply, that is, during the peak period of solar power generation, as the amount of electricity generated is much larger than the amount of electricity consumed, in order to ensure the stability of the power grid, the pressure on the power grid will be reduced by lowering the electricity price to encourage people to use more electricity during the peak period of power generation, and after the introduction of the negative tariff mechanism, the price of electricity can even fall below zero, and there will be negative tariffs.
For the European solar market, the impact of negative tariffs is coming to the fore.
The European solar market has seen explosive growth in PV installations over the past years thanks to PPA power purchase agreements, with installed solar capacity in the EU more than doubling between 2019 and 2023, according to SolarPower Europe.
Simply put, over the past few years, European solar developers have entered into power purchase agreements (PPAs) with buyers that are tied to the market price of electricity, which has led to faster growth as the PPAs have allowed for faster and larger expansions that no longer require subsidies for solar expansion.
However, with frequent negative tariffs and declining revenues from power generation projects under PPAs, investment in new projects is slowing down.
Negative tariffs slow down new solar projects
For the photovoltaic power generation terminal, negative tariffs mean that sending electricity to the grid during that time period will yield negative returns, and in the absence of energy storage, it will undoubtedly dampen the incentive to invest in power stations.
José María González Moya, director general of renewable energy organization APPA Renovables, said that new projects under the PPA power purchase agreement are already on the decline and that, to some extent, investment is slowing down.
Jens Hollstein, head of consulting at PPA pricing platform Pexapark, also said that solar producers are being forced to sell their power at ever-lower discounts and at ever-thinner margins. He expects a slowdown in solar investment development if the current situation continues.
For the current overcapacity, inventory buildup of the photovoltaic industry, is undoubtedly bad news.
However, negative tariffs become more frequent and longer, but also lead to the power market peak and valley gap is getting bigger and bigger, but also from another point of view to enhance the attractiveness of energy storage investment.
Equipped with energy storage, power generators can store power during negative tariff hours and transmit it to the grid during peak hours, earning a greater peak-to-valley tariff difference and thus higher power generation revenues.
Energy storage will be key to clean energy investments
In the first half of this year, Bill Gates has publicly stated that the key to constraining the growth of solar energy is energy storage technology, which is consistent with the views of many people in the photovoltaic industry.
The International Energy Agency (IEA) emphasized the urgent need for energy storage in an annual report, with the IEA stating, "If wind and solar are not paired with storage, then developers will find profits slipping during peak generation periods, which will further discourage clean energy investment."
This view has been shared by some renewable energy developers.
Statkraft, a Norwegian renewable energy producer with operations in Europe, said that in the current circumstances, the company may divest some of its wind and solar projects, but may retain its cell assets.
A spokesperson for VKU, the German association of local utilities, also said that only those consumers who have invested in heat pumps, electric vehicle charging piles or energy storage systems will benefit from negative prices against the backdrop of growing clean energy generation.
According to the EU's plan, the EU's energy storage demand will need to more than triple from 2022 to 2030 to match the target of a 69% share of renewable energy in its power system.
Source: SOLARZOOM