Testing conditions in many European power markets are leading developers of larger solar projects to explore new ways of generating more revenue and better managing existing operations.
High volatility in Europe’s wholesale power markets and low, or even negative power prices as more renewable energy comes onto the grid, are impacting revenues of large-scale projects.
Germany registered 78 hours of negative power prices in May, while Spain recorded a 13.76 €/MWh average wholesale power price in April, an historic low.
For assets with higher capex costs, as well as those in areas with lower irradiation, the recent drop in average power prices is creating financial challenges for developers and asset owners, explains Marcus Peech, Senior Director, Energy and Infrastructure Advisory at JLL.
“Projects considered viable in a high-power price environment are now feeling the effects, meaning more marginal returns and lower developer margins.”
Seasonality, particularly in Europe, remains an issue, while the so-called cannibalization effect – high levels of photovoltaic output in midday hours, which can depress wholesale prices – is having a varying impact.
“The effects of this are definitely more acute in southern Europe and in countries where there is high deployment of PV,” explains Peech. “The UK, for now, has felt this less, given lower irradiation and less rooftop deployment.”
Most operational PV assets in the UK are either supported by government-backed mechanisms, or have long-term power purchase agreements (PPAs), helping to alleviate the impact of cannibalization, Peech adds.
Curtailment events, when grid operators request certain plants to stop producing power due to congestion issues, have become more common in recent years, explains Tomás García, Senior Director for Energy and Infrastructure Advisory in Spain at JLL.
“This issue, alongside cannibalization, is likely to become more important,” he says. “The current situation in Spain is, we feel, an example of what may lay in store for the rest of Europe.”