Photovoltaic and wind power made electricity prices 40% lower in the first half of the year in Spain

The wholesale price of electricity in Spain during the first half of 2024 was up to 40% lower than it would have been without the investments in solar photovoltaic and wind capacity made since 2019, according to an article published in the Economic Bulletin of the Bank of Spain.

The article, authored by Javier Quintana, analyses the impact of renewable energies on the wholesale price of electricity.

The capacity for electricity generation with renewable energies is increasing significantly in Spain and, given the marginalist system of pricing in the wholesale electricity market, this can have profound implications for the behaviour of electricity prices, the article explains.
The weight of wind and solar energy in total electricity generation has gone from 26% in 2019 to more than 40% in the first months of 2024, according to the article.

This work estimates that the wholesale price of electricity could be reduced by up to an additional 50% in 2030 compared to the average observed in the last year in the renewable generation deployment scenarios contemplated in the update of the National Integrated Energy and Climate Plan (Pniec) 2021-2030.

The Plan includes the objective of increasing the share of renewable energies in electricity generation from 37% in 2019 to 81% in 2030, and nearly 90% of the increase will come from the increase in wind and solar generation capacity.
Without this increase since 2019, the price of electricity in 2023 would have been 25% higher, while in the first months of 2024 it would have been just over 40% higher, the article explains.

“The increase in the weight of renewable energies in electricity generation may imply a very significant change in the dynamics of electricity prices in wholesale markets,” it adds.

It also explains that an increase in renewable generation – whose marginal cost of production is relatively low – would affect wholesale prices to the extent that it displaces other technologies with higher marginal costs from the energy mix.

According to the author, the increase in wind and solar capacity has led to an increase in the variability of prices observed within the same day.

Hours with a zero or negative price reach 15%

Thus, if in 2019 there were no hours with a wholesale electricity price equal to zero or negative, in the first months of 2024 their percentage reached 15%, as renewables with very low marginal costs are sufficient to cover demand in those hours.

However, the article points out that the future behavior of prices “is subject to considerable uncertainty”, as it is conditioned by the evolution of different supply factors and the adaptation of demand to the new levels of renewable generation.

These factors include the viability and the pace of execution of the investment projects planned to increase the renewable electricity generation capacity, as well as the intensity with which the electrification process advances, on the demand side.