Business Insider: Germany has too many solar panels, sending energy prices into negative territory

Sunny days in Germany mean dark clouds for the profitability of solar energy production, as the strong development of renewable sources in the country has brought too much production, writes Business Insider.

According to SEB Research, recently, solar producers in Germany had to cut the price by 87% during production hours. Moreover, at peak times of production, prices dropped below zero, the publication said.

On average, the price received was 9.1 euros per megawatt-hour, significantly below the 70.6 euros paid in non-solar hours. "This is what happens to energy prices when unregulated energy production becomes as high or higher than demand," the Swedish financial services group's team wrote in a note on Tuesday.

The record number of solar power plants built last year is causing prices to "crash" in Germany as inventories outstrip consumption. While total solar generation capacity had exceeded 81.7 gigawatts by the end of 2023, demand had only reached 52.2 gigawatts, according to Bjarne Schieldrop, chief commodity analyst at SEB.

Moreover, the gap between supply and demand increases even more in summer, the season when production reaches its maximum and demand is lower. But consumers don't necessarily benefit from the lower prices because they consume more during the off-sun hours.

"Unless the development of new installations is stimulated by subsidies or the conclusion of power purchase agreements, reduced profitability could ultimately halt the expansion of German solar production," Schieldrop said.

Instead, it is possible to pay more attention to elements that will use more of the energy produced, such as investments in batteries and grid infrastructure. "Over time, this will deplete the availability of "free power' and drive up solar prices," Schieldrop wrote. "This will reopen the way to increase production capacities".

The imbalance between supply and demand is not only a problem for Germany, with Europeans quickly installing solar generation capacity after Russia cut off energy supplies. Thus, the excess supply - to which the increase in production from wind and nuclear sources also contributed - led to times when prices went negative. But consumers aren't rewarded for using electricity because they don't pay the raw market price, but rates are usually agreed in advance, according to Business Insider.