Booming renewables capacity, growing economy, shrinking profits: Spain’s power paradox

From booming renewable capacity to eroding profits. Spain’s market dynamics reveals a growing economy facing a high presence of low-price hours in the energy market.

By focusing solely on negative prices in 2024, we see the central western region countries (Germany, the Netherlands, Belgium, and France) dominate the chart: each has recorded over 300 hours of negative prices this year, meaning prices are negative more than 5% of the time. This is roughly equivalent to having on average 1 hour of negative pricing per day.

Now, adjusting the threshold to include very low positive prices below 5 €/MWh, the following is observed.

Here, the picture changes dramatically, with Spain rising to the top of the chart, nearly doubling Germany’s cumulative hours of low prices. In 2024, Spain experienced very low prices, approximately 22% of the time, highlighting the impact of price cannibalization from renewables and in particular solar.

Is Spain’s solar sector facing an economic crossroad?

Spanish power demand is expected to increase through 2030, driven by several factors. According to a May 2024 report from the European Commission, Spain’s GDP growth is projected at around 2% in the next 2 years, alongside a significant rise in employment (the highest in Europe in late 2023) and an unemployment rate now at its lowest since 2017. Low electricity prices, a strong clean energy mix, and extensive hydro resources make Spain an attractive location for hydrogen production and industry. The government also plans to add 20 GW of battery energy storage systems (BESS) by 2030, further supporting the energy market.

Although Spain lacks a support mechanism for utility-scale solar, a robust PPA market has sustained investment and hedging. This is mainly due to Spain’s advantage of higher full-load hours due to its sunny climate, yet capture prices remain a challenge.

The graph above illustrates the evolution of solar generation in Spain alongside its capture rates, highlighting the stark contrast between rising generation and declining capture rates—a clear indication of the cannibalization effect in full swing. Since January 2023, Spain has added approximately 10 GW of new solar capacity, marking a 55% increase in installed capacity within just 18 months. According to Kpler data and UNEF, there is an additional 3 GW installed for residential consumption. As a result, capture rates plummeted the last two years, reaching a record low of 40% in April 2024. This low trend is expected to persist in the mid-term.

Looking ahead, further solar buildout and Spain’s overall renewable surplus are likely to keep average-to-low capture rates and renewable operators revenues under pressure. This will make new solar investments challenging without added flexibility in the system. One solution could be a techno-economical analysis of hybrid co-located solar and storage assets, providing “generation-shifting” and more stable income potential.

‍