Solar cannibals, by IRINA SLAV
“I call it solar cannibals but more serious people call it “the renewables cannibalization effect,” occurring when wind and/or solar are generating so much electricity wholesale prices take a plunge…”
Solar cannibals
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Solar cannibals
APR 22, 2024
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News flows in the energy world are often entertaining, about as often frustrating and, occasionally, truly hysterical, as in hysterically funny. I’m happy to report that the “occasionally” has recently evolved into “often”.
Because of this evolution, it has become harder to pick which specific hysterical development to pick on. So I applied the Slav LOL test to make my pick for today, the test being me deciding which piece of news made me laugh the loudest. I give you today’s winner: solar cannibals.
I call it solar cannibals but more serious people call it “the renewables cannibalization effect,” occurring when wind and/or solar are generating so much electricity that wholesale prices take a plunge because there’s not enough demand to absorb the output.
It’s nothing new, this effect. It’s nothing too disturbing, either — or it wasn’t, until recently. Because now there’s a lot more solar in Europe than a few years ago and the cannibalisation effect is a lot more noticeable. In fact, it’s so noticeable, it’s driving prices below zero with all due implications of that on the profitability of those concerned. The Slav LOL reading? Off the charts. “Harbinger of power market collapse in Europe” score? Top-notch.
Reuters’ Gavin Maguire last week wrote a detailed analysis of the problem (linked above), which talked at length about things called “capture rates” and “capture prices”, the latter of which appear to be a period for some reason, and about politicians’ worries that the electricity market is not going where it should be, as well as Germany’s and Spain’s suffering because solar has made their electricity too cheap.
Essentially, however, it all comes down to an extremely simple thing, as already hinted at the beginning. When a generator produces a lot more electricity than is needed, the price of that — and all other — electricity drops. The more excess output there is, the longer the price fall.
That’s bad news for the generators because they can’t turn in a profit. The punchline? While gas and coal generators can get some relief during peak demand thanks to their dispatchable nature, solar generators can’t. No sun, no electricity — and don’t even mention batteries. Apparently, it’s going to get worse.
“This year's situation with a higher contribution of solar PV will mean that the number of hours with negative prices in summer will be higher than in previous years, but we do not foresee a situation similar to that of this spring,” one analyst from a Spanish energy consultancy named AleaSoft told pv magazine.
Another, however, disagreed. “We can expect the phenomenon of negative prices to intensify this coming summer, especially in markets with increasing penetration of renewable electricity into the grid, such as Spain, Germany and the Netherlands,” Simon Dupond from SolarPower Europe, the industry association, said.
Remember the Netherlands? Transition Employee of the Month? Solar panels on every home, supermarket, and church? Yeah, that Netherlands. Also Germany and Spain, the runners-up. All will see lower electricity prices because of abundant solar output, which is about to get even more abundant as the days get longer in late spring and summer.
Apparently, the trend will extend beyond this year, too, per Reuters’ Maguire, as even more solar joins the grid. Yet these low electricity prices will start taking their toll, discouraging further investment in more capacity, acting as a natural cap. It is this natural cap that appears to be worrying Europe’s transitionists.
Who could have thought that if a business becomes unprofitable it will cease to exist? More dramatically, who could have foreseen that adding more and more fluctuating solar generation to the grid would lead to bursts of supply during demand dips, pulling prices down?
Not everyone’s worried, though. There’s this guy from AleaSoft, for example, who told pv magazine that “energy storage systems, the production of green hydrogen, rising electricity demand, and expanding international interconnection capacity will significantly reduce negative prices and the curtailment of renewable energy.” Ah. Batteries.
The guy’s head of data analysis and modelling at the consultancy, so he obviously knows what he’s talking about. Sure, he’s talking at a time when EV sales are plunging across Europe as subsidies are cut, when suddenly no one’s talking about green hydrogen, and when the race to build a cheap battery remains very much on but models can’t lie, can they? Batteries, green hydrogen, and rising electricity demand will take care of everything. If they don’t, governments will step in, as suggested by Reuters’ Maguire.
Noting solar developers’ profit concerns, he wrote that “if policymakers keep a long-term view in mind of the benefits from a fully developed renewable energy system, appropriate incentives for power developers could be created to ensure the pace of the region's energy transition is maintained.”
To me, this translates into “Governments need to make sure that solar is expensive enough to stimulate even more capacity, regardless of its actual price at the time of day when there is production.” And they will have to keep doing it forever because that cannibalism thing doesn’t sound reversible. Cheap renewable energy, one and all.
Obviously, when relevant factors such as backup generation and subsidies are taken into account, solar is already expensive enough — for consumers. But it’s not expensive enough for those who generate it, so it needs more help, otherwise it would cannibalise itself. And that’s how the means becomes an end in itself.
Solar, like wind, was supposed to be the means of building a “cleaner” energy system. But this system was also promised to be cheaper because “the Sun shines for free”. Now that solar has actually got cheaper enough to benefit those using electricity generated from it, the cost has become a problem — because it’s not making enough money for the operators of large installations. What is to be done?
That one’s easy and I recently covered the Reuters take on it for Oilprice, so I’ll be quoting myself for a change. The EU recently came out with a proposal to lock in a certain price of wind and solar for longer periods of time with the so-called contracts for difference.
These are being touted as a way to protect consumers by ensuring stable prices over years. In fact, they would protect developers by guaranteeing them a certain minimum price for their output insulated from intraday price swings. And they will keep giving them subsidies as long as the developers agree to use these contracts for their output.
In other words, solar developers would receive a certain price whether or not they are generating electricity and whether or not this electricity is being consumed or “curtailed”, which is a nicer way of saying wasted for lack of demand. Also, “None of these forms of support will be made available to fossil fuel generators that currently provide baseload generation capacity for EU members.”
Killing baseload generation has never been more important, I imagine. Baseload generators are not only not getting subsidies, they are, of course, also being punished with carbon permits — and even nuclear hasn’t been spared. Because that dirt-cheap electricity solar produces in midday has, to repeat, pushed down all prices, including the price of nuclear power.
"With current power prices, the traditional baseload plants will struggle, unless we face longer periods with very unfavorable solar and wind conditions, drought or strong heat,” one Norwegian energy analyst told Bloomberg earlier this month.
Indeed, the report lists several nuclear power plant operators in France, Spain, and the Scandinavian countries where output was being curbed repeatedly because of the spring surge in sunshine and consequent solar output. It would be interesting to calculate how much this has pushed up the total cost of solar, because these curbs do not come free.
Europe’s transitionists have once again outdone themselves. They have managed to make solar cheap enough for several hours every sunny day to hurt the whole electricity market while working tirelessly to make it sustainably expensive for consumers. If there’s one thing no one could deny the transition army it is that they don’t give up in the face of adversity. They weaponise
Stop weaponizing the transition or stop the transition.