Two years ago, the war in Ukraine sent the price of energy in the wholesale market skyrocketing to values that exceeded 200 euros per megawatt hour (MWh). Yesterday, Sunday, while Iran attacked Israel and the alert of a new conflict resonated throughout the planet, in Spain between 3 and 5 p.m. that price was at negative 1.01 euros. The lowest price in its history.
What has happened in this period, for the benefit of end customers, is the massive implementation of renewable energy projects and favorable weather conditions. The marginalist market that previously despaired consumers has now become the ogre of producers, especially solar energy producers who find it increasingly difficult to make their projects profitable.
These negative prices, which for a few months have increasingly taken center stage, are the tip of the iceberg of a downward price trend that, according to businessmen in the sector, can even put in check the dream of Spain becoming into an energy exporting power.
So far this year alone, the average price of electricity in the wholesale market has plummeted by 53%, according to a study of the evolution of prices hour by hour carried out by APPA renewables, with data from Omie between 1 January and April 10.
The employers' association of renewable companies points out that in the central hours of the day, where zero or negative prices are most often recorded, the average is around 30 euros MWh, while the maximums are just over 70 euros in the afternoon peak. The price drop exceeds 60% in the early hours of the morning. These figures are very far from last year's average, of 87.1 euros per MWh, and even more than the 167.52 euros per MWh that were registered in 2022.
“We have hydroelectric production well above normal due to heavy rains in much of Spain; The wind power is also working very well as a result of these storms, and the photovoltaic has added a lot of power in a short time,” comments the ASE group analyst, Juan Antonio Martínez, to explain the current situation.
Along with the meteorological conditions is the increase in renewable supply. In 2023 alone, Red Eléctrica Española accounts for 6,300 megawatts (MW) of green energy newly incorporated into the system. Of them, almost 5,600 MW correspond to solar photovoltaic technology. In addition, we must add the self-consumption boom in both 2022 and 2023 and the 2,500 projects with more than 100,000 MW that received authorizations last year.
Many of them still struggle with bureaucratic obstacles and costs such as guarantees that make it even more difficult to achieve the expected profitability.
“We are witnessing an absolute oversupply that can collapse the electrical system. The Government has to be bold, extend deadlines so that all the projects that are planned enter the system in a more orderly manner,” warns Fernando Lacaci, head of operations at X-Elio.
Lacaci joins the general call made by the sector this week at the Energyear 2024 meeting held in Madrid. “I don't know if with this legislative framework there will be a consumer for the renewable objectives set by the National Integrated Energy and Climate Plan,” said Carlos Relancio, director of renewable energy at Galp. At the moment, there isn't one.
The rise in prices after the war and the vigorous campaigns in favor of savings have borne fruit. “Consumers have implemented all possible efficiency measures and self-consumption has skyrocketed. That explains, along with the fall in industrial demand, the decline in consumption,” explains Jon Macías, president of APPA Autoconsumo. In the case of self-consumption, what suffers are the facilities that were designed with remuneration for surpluses in mind, which is now low or non-existent. “For the rest, amortization is delayed by about two or three years, but since they last more than 30 it is not a problem,” says Macías.
Christina Rentell, Energy specialist for Iberia at the consulting firm Aurora Energy Research, maintains that this situation is here to stay. “The generation that is being installed has little flexibility, there are no storage systems and there is no forecast that demand will increase,” she analyzes. In her opinion, photovoltaic projects are the most at risk because they generate more energy when prices are lower. “I think there will continue to be investor interest in Spanish companies, but perhaps there will be a more extensive analysis of the business plan,” says Rentell. “Companies that have a balanced portfolio and minimize their exposure to market risk will still add a lot of value,” she adds.
But it is not only photovoltaics that are crying out for changes. “It is no longer a question of looking for cheap prices, we must look for a legislative and business model that ensures the demand for both photovoltaic and wind energy as well as hydrogen. The Government must give weight to industrial plants to consume renewables if it wants to sustain the system. Otherwise all bets could be in jeopardy,” warns José Luis Moya, CEO of Ric Energy.
Along with this boost from the already existing industry, managers such as Leonardo Moreno, advisor to Solarpack, insist on the need to boost batteries, reducing the guarantees that the administration now requires, and sell Spain as the perfect destination for data centers (consumers of 5% of global energy demand) and promote hydrogen and ammonia projects that attract international industry.
