This technical analysis is authored by Kiko Maza, energy expert and CEO of WeMake Consultores, who examines in depth whether Europe has reached the threshold of renewable saturation. Drawing on recent graphs presented by Hitachi at Intersolar, Maza explains the physical limits of renewable penetration—particularly solar—and how these translate into market effects such as price cannibalisation, captured price, and economic curtailment.

 “Captured prices”, “cannibalisation”, “economic curtailment”, “renewable saturation“… these are concepts that we have been hearing about renewables for some time now, but which have multiplied since the blackout, monopolising a large part of the discourse in the sector. But some of them are complex concepts for the uninitiated and in many coffee discussions there are aspects that get mixed up and confused because some basic ideas are not clear. So we put on our public service suit and dedicate this month’s article to trying to clarify these and other concepts.

The chart that sums it all up

At the recent The Smarter E (Intersolar) in Munich, during the conferences, Hitachi gave a very good presentation on the limits of renewable penetration and ways to increase this limit. I really liked this graph because it sums up a lot of things about “renewable saturation” in a simple way. Although the graph applies to the German case, there are many concepts that are common to any market:

• The graph shows on the horizontal axis the potential generation (installation) versus the generation used.
• In the case of solar, there is obviously a physical limit, which is the hours of sunshine, but we see that, in Germany, adding capacity after 25% penetration starts to be very inefficient.
• As a time-limited resource (sunshine hours), if there is no storage, penetration will tend to asymptote no matter how much capacity we install.
• Wind has a much more spread out production pattern over the day so it does not have as clear a limit as solar.
• However, in the case of Germany, it is seen that from 50% of demand service, additional capacity starts to achieve marginal increases in penetration.
• Germany is a country with a good wind resource so that, theoretically, 85% wind penetration could be achieved by installing almost 5 times the peak demand, which is quite impressive.
• It is also striking how the penetration curve is improved by seeking an optimal mix between solar and wind, which in the case of Germany is 64%-36% in favour of wind. In other words, Germany would have to install twice as much wind as solar (if there were no storage or interconnection). The reality is that there is currently more than 90 GW of solar in Germany compared to about 70 GW of wind.

From generation to market price

This theoretical scenario helps us to understand the phases of behaviour in the renewables market:

1. Up to 25% penetration, all renewable capacity added meets demand, so nothing is wasted.
2. But in the case of solar, if capacity continues to be added, it produces in the same hours as the existing capacity, so it no longer meets new demand and yet it competes with the rest of the solar installation.
3. This causes the penetration level to grow very slowly as a lot of installation is needed to serve new demand segments (e.g. early in the day and in the evening).
4. But at the market level, it causes the famous price cannibalisation, since, with the current pricing system, all demand can be covered by solar generation that enters the auction at zero or very close to zero value.
5. Wind power, however, takes longer to reach saturation as its production is spread over the day.

What is “Captured Price”?

As the electricity market is settled on an hourly basis, each MWh injected will have a different price depending on the hour. The captured price of a technology is the ratio between its average price and the average price of the whole mix in a period of time.

The graph above shows the annual capture ratio by solar and wind in Spain. It can be seen how the average solar prices are increasingly lower compared to the average price. This is a direct consequence of price cannibalisation as many of the solar MWh are being sold at zero price.

Wind, however, maintains prices better, although its average is also below average prices. As mentioned above, this is because its production profile is less concentrated and therefore its cannibalisation effect is lower.

This is a Europe-wide problem as seen in the following graph from Pexapark showing the average for Germany, Spain and France.

From captured price to economic curtailment

As auctions in the hourly electricity market take place on a day-ahead basis, generating companies already have a clear picture of when prices are going to be zero and so, in some cases, they prefer to keep their plant idle as the cost of operation is higher than the revenue they are going to receive. This phenomenon is called economic curtailment.

This “voluntary” curtailment must be differentiated from technical curtailment, where the grid operator, due to grid congestion at or operational needs, orders a generator (whose production was already sold) to reduce production or even stop producing, with the consequent economic loss.

In terms of curtailment, Spain is not as bad as other countries and its renewable penetration is higher and much of the credit for this is due to the magnificent work of Red Electrica. Although, as Chema Zabala of Alantra Energy in his Linkedin post says , the important thing about the percentage of hours of emissions is not the percentage of hours but their economic value. For those who would like more details on spills in Spain, I highly recommend the presentation that Chema attaches in his post.

But here comes a double solution: Storage + Interconnection

The limitations of renewables (especially solar) have become clear when penetration levels in the mix are high. When saturation is reached, there are 2 key tools to increase the renewable integration threshold:

• Energy storage: the concept is very simple: store energy when it is surplus and move it at times when it is needed. These can be high-capacity and long-lasting technologies such as hydraulic pumping, but the most flexible, simple and cheapest solution is currently lithium-ion batteries. We have battery systems of up to 8 hours duration although 2 and 4 hours are now the standard. The main cell technology is LFP and the price drop and performance improvement in the last 3 years has been spectacular.

Battery systems (BESS) already come in an integrated format in 20-foot containers where manufacturers integrate more than 6 MWh of storage with a 5-year guarantee without degradation.

The installation of batteries is already being incentivised as shown by the recent publication of the €700m subsidies in Spain but it would even be reasonable to consider some kind of future obligation to install a battery alongside any solar farm, as if it were a mandatory extra feature.

• Interconnection: if batteries fit like a glove with solar, interconnection fits like a glove with wind. Wind is a much more localised resource than solar, so it is very likely that when there is a surplus resource in one part of Europe, there is a shortage in another. This concept, which is intuitive, is shown very graphically in the slide presented by Hitachi at Intersolar. It clearly shows in colour the clusters where the wind blows in a similar way, so that interconnection between these clusters is required in order to take advantage of the entire resource. As can be seen, Spain and Portugal form a cluster with similar wind patterns, so that without interconnection with France it is impossible to take advantage of moments of high wind.

Denmark, for example, achieves a very high wind penetration rate of 56% in 2024 thanks to having an interconnection of 44%. Spain, however, with a meagre 5%, has the lowest level of interconnection in Europe, which limits the maximum threshold for wind penetration without cannibalisation or spillage.

And as a bonus track the long-desired flexible demand

If to the capacity to move generation either through storage (temporarily) or interconnection (geographically) we could add the capacity to move demand, the renewable saturation thresholds would grow substantially. Electricity consumption that can be moved as vehicle charging or heat-pumps together with smart grid systems are the future. In addition, this consumption will lead to an increase in demand, which is currently very necessary if we want to avoid major imbalances.

Is a 100% renewable grid possible?

Yes, indeed. As we have seen, there are tools to resolve the current limitations of saturation and cannibalisation, but it must be a gradual process. As we have seen in Spain, the speed of integration of renewables is marked by the grid, as its adaptation, whether in interconnections or stabilisation systems, is slower than the rate of installation of renewables.

This is not the time to call for a slowdown in renewables but to demand an acceleration in the deployment of tools that allow greater integration and stability in the grid