Europe Has Installed So Many Renewable Energy Sources That It Now Faces an Unusual Problem: Electricity Is Now Too Cheap

  • While near-zero energy pricing may seem like a dream for consumers, it actually masks grid inefficiencies.

  • Europe needs better infrastructure to manage the overproduction of renewable energy effectively.

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Europe is currently installing more wind and solar power capacity than the U.S. In an unexpected turn of events, this is leading to electricity becoming too cheap.

Spain’s case. In Spain, the abundance of sunlight between 11 a.m. and 7 p.m. can cause energy prices in the wholesale market to drop to zero or even go negative.

For instance, back in April, heavy rains led to a situation where electricity demand was mostly met by hydro, wind, and solar generation, resulting in extremely low prices.

Germany’s case. Germany isn’t known for sunny weather. However, there have also been instances of negative electricity prices due to the country’s significant onshore and offshore wind power capacity.

After facing high gas prices in the aftermath of the invasion of Ukraine, wholesale prices were negative for 301 out of 8,760 trading hours in 2023 in the German market. For context, Germany’s renewable energy share stands at 51.8%.

An intermittent power. Near-zero energy pricing may seem like a dream for consumers, but it presents a challenge for European regulators. Although Europe is generating more renewable energy than ever before, it’s not always being used efficiently.

Wind and solar power’s inconsistency and unpredictability lead to periods of surplus generation. As a result, Europe has to compensate by using gas-fired power plants and other energy sources that can adjust their output in real-time.

The downside of cheap electricity. Europe has a growing but wasted surplus of renewable energy. As such, the region is facing, on the one hand, lower energy prices in the wholesale market and, on the other hand, reduced profits for investors in the wind and solar industry.

For instance, in Germany, the capture rate for solar panels–that is, the ratio of the price a renewable energy producer gets for its electricity to the average price on the wholesale market–has dropped from 80% three years ago to 50% in May.

Three solutions. There are three main solutions to address this challenge: Improving grid interconnection, shifting energy consumption to periods of abundance, and storing excess energy for later use.

However, implementing these solutions comes with challenges:

  • Improvements in grid interconnection could capture 42 terawatt-hours of electricity that would otherwise be wasted. However, expanding the grid faces local resistance and increases costs.
  • Shifting flexible energy sources, like electric vehicle charging, to times of surplus power requires smart meters. The installation of smart meters is underway in many countries, but it’s progressing more slowly than the expansion of renewable energy sourced.
  • Storage projects aimed at enhancing grid flexibility are underway and are very important. These include large-scale lithium batteries, long-term sand battery facilities, which are being tested in Finland, and hydroelectric batteries, which are planned in reservoirs in Spain.

A matter of incentives. Like all major projects, these solutions to the renewable energy issue in Europe require significant incentives, especially if they’re extended to consumers. An incentive to encourage energy storage in electric vehicles, for instance, could motivate consumers to absorb excess energy with their cars.

Image | Siemens Gamesa

Related | France Connected Its First Solar Panels to the Grid in 1992. Three Decades Later, They Still Have an Astonishing Power Output

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