Antonio Delgado Rigal, CEO of AleaSoft Energy Forecasting, explains to Energía Estratégica España that this phenomenon is the result of renewable growth that has not been accompanied by progress in other strategic areas of the energy transition. For Delgado, these episodes represent a temporary challenge that could be mitigated with a more balanced development of the system.

A recent report by the European Agency for the Cooperation of Energy Regulators (ACER) highlights that in 2023, the share of time in which electricity in the European Union came from “potentially non-receptive” sources increased by 10%, reaching 55%. This change, driven by an increase in wind and solar generation and a reduction in the use of fossil fuels, has accentuated the volatility of electricity prices and multiplied negative price episodes.

“For the energy transition to progress effectively, balanced development is necessary,” emphasizes Delgado. This balance, according to the executive, includes the electrification of industrial demand, promoting electric transportation, and creating demand in sectors like Data Centers. Additionally, Delgado stresses the importance of reinforcing international interconnections and advancing storage technologies such as green hydrogen and batteries.

Frequency of Negative Prices and Their Implications

Delgado argues that, although the frequency of low and negative prices has increased in spring, when demand is low and renewable production is high, these are not the norm. “The regularity of zero or negative prices is not sustainable in the long term, and if it persists, it would negatively impact investments in renewable energy,” he warns.

ACER reinforces this view, reporting that in 2023 there were 15 episodes of negative prices lasting up to 16 consecutive hours in some bidding zones in the EU. According to the agency, these episodes represent direct competition for conventional plants, many of which remain operational even during periods of high renewable generation due to subsidy schemes that guarantee them income, putting additional downward pressure on prices.

For Delgado, frequent low or negative prices hinder the profitability of investments in renewables and complicate Europe’s decarbonization goals. “If prices continue in this direction, generators will need to adjust their business models towards flexibility, storage, and hybridization solutions,” emphasizes the CEO of AleaSoft. Additionally, he notes that Power Purchase Agreements (PPAs) are a key tool to stabilize revenues and mitigate exposure to market volatility.

System Flexibility: The Key to a Successful Transition

One of the most important points in the energy transition is the response capability of the electrical system to the high penetration of renewables. “To increase flexibility, it is essential to promote energy storage in batteries and encourage the hybridization of solar and wind plants,” says Delgado. He also mentions that it is crucial to establish capacity markets that provide additional income to generators, thus ensuring availability during critical moments.

The digitalization of consumption management is another strategy highlighted by Delgado. “Encouraging demand response through electricity tariffs would help adjust consumption based on the availability of renewable energy,” he explains. This adjustment would not only benefit the grid, but could also generate savings for consumers during low-price hours.

The ACER report underscores the need to increase interconnections between European countries, which would allow renewable energy surpluses in one country to be utilized in others. This measure is crucial to ensure stability and flexibility that facilitate supply and demand balancing across the region, especially during high renewable generation periods.

Forecasts and Tools for an Investment Strategy

For renewable energy investors, the current market volatility presents a challenge in evaluating and planning projects. In this regard, long-term price forecasting tools are essential to assess the profitability of renewable projects. According to Delgado, “these forecasts allow for better risk assessment and the planning of hedging strategies, which is crucial in a time when battery storage is gaining prominence.”

Delgado notes that the storage market is a significant opportunity area, as the decline in battery costs, combined with the rise in negative prices, favors the adoption of storage systems. However, he emphasizes that for mass adoption, specific incentives are necessary, and capacity markets must be developed to increase the profitability of these solutions.

The trend towards low and negative prices presents significant challenges for the renewable sector in Europe. For Delgado, adapting the business model of generators and implementing storage and hybridization solutions are essential steps in this new context. He also suggests that incentives and planning around industrial demand could create a virtuous circle that increases demand and stabilizes prices.

In Delgado’s words, “This is a turning point where the renewable energy sector must reinvent itself and adapt to maintain profitability and contribute to decarbonization.” The ACER data and AleaSoft’s forecasts highlight the importance of a balanced approach to the energy transition that includes all strategic vectors of the European electrical system.