Solar and wind power prices fall to record lows

Europe has experimented negative energy prices several times this year as the rapid pace of solar and wind development outpaces the region’s ability to handle excess supply. Electricity prices fell into negative numbers for 7,841 hours in the first eight months of 2024, sometimes as low as -$22 per megawatt hour, according to consultancy ICIS. The main culprit was the solar sector, driven by inconsistencies in electricity delivery due to its unstable nature. While the deployment of utility-scale batteries could help address this challenge, this could take several years and countries will have to deal with these price drops in the meantime.

Countries in Europe have invested heavily in wind and solar energy projects in recent decades as the price of these clean energy sources has fallen in line with falling installation costs. Solar photovoltaic (PV) cost has escaped by 90% in the last decade, while the cost of offshore wind has fallen by 70% and batteries over 90 percent. This is largely due to the strong growth in wind and solar power generation during that time. Data that compares increasing global production relative to cost of wind and solar energy shows that costs have fallen by about 20% each time cumulative global capacity doubles. Over the past four decades, solar energy has gone from being one of the most expensive sources of energy to one of the cheapest.

However, as countries increase their renewable energy capacity, they face financial challenges in the transition. Solar and wind power are highly volatile, producing power when the sun shines and the wind blows, not during the night or on still days. This means that on days when wind and solar generate high levels of electricity, the market can become oversaturated with cheap power. This greatly reduces the price of electricity, sometimes to negative figures. Meanwhile, during periods of low or no production, no electricity is delivered to the grid, leaving it to rely on other, more stable energy sources such as natural gas.

This has some benefits as customers can enjoy cheaper energy prices where utilities offer off-peak promotions. Utilities are increasingly encouraging customers to use more energy during high production hours and thereby reduce usage during peak and low production hours. This can be done by offering customers cheaper energy prices at certain times of the day, leading them to use energy-intensive appliances or charge electric vehicles when there is an abundance of clean energy available.

However, the unreliability of many clean energy sources presents a clear challenge to utilities trying to provide stable power to consumers. Although investment in wind and solar energy projects continues to grow, as governments around the world pursue a green transition by providing financial incentives, some operators are shelving projects due to uncertainty about energy prices. Several producers in Europe have been forced to reduce their electricity production or pay to offload electricity due to grid saturation, discouraging them from making new additions to wind and solar farms.

This demonstrates the clear need to increase energy storage in line with increasing renewable energy capacity. International Energy Agency (IEA) he stated“Developers who choose not to co-locate their wind and solar PV farms with battery storage or other sources of flexibility may see a drop in potential peak-period revenue – hindering profits and discouraging investment.”

The EU expects energy storage will need to more than triple between 2022 and 2030 to match the forecast 69% share of electricity from renewable sources by the end of the decade. The roll-out of battery storage could be further supported by greater investment in grids and AI-powered smart meters to better manage energy efficiency for consumers.

the AIEs Special report on batteries and safe energy transitions states that battery storage was the fastest-growing energy technology in 2023, with deployment more than doubling year-on-year. A total of 42 GW of battery storage has been added globally. However, the pace at which battery storage is being rolled out is not matching the increase in renewable energy capacity worldwide, resulting in volatile energy prices in countries with a high share of green energy on the grid.

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

By Felicity Bradstock for Oilprice.com

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