Solar curtailments to become new normal in Spain amid challenging PPA economics

Solar power curtailments could become the new normal during periods of oversupply in the spring in fast-growing markets like Spain, analysts have told Platts.

Capture prices for solar are set to plunge to a record low this May despite unprecedented levels of curtailment for the sector, which saw installed capacity double since 2021.

In Spain, daily capture prices are set to average around Eur4/MWh this May, down over 70% on year, according to Platts assessments. Platts is part of S&P Global Commodity Insights.

"Curtailment is likely to increase in the next few years," said Ana Isabel Barillas, managing director of Aurora Energy Research for Iberia and LatAm. "There is economic curtailment, but there is also grid curtailment, and in some areas of Spain, there is a lot of local congestion."

"Spring is always going to be the period of the highest curtailment. We have the confluence of very low demand, wind, solar and hydro," Barillas told Platts in an interview on the sidelines of the Aurora Spring Forum.

Spanish hydro levels have been exceptionally high over the past two spring seasons, while demand has not grown as expected. Spain's solar capacity tripled since 2020 and started this spring around 32 GW, data by Red Electrica showed. Commodity Insights analysts forecast 39.5 GW installed by end-2025.

"I would expect Spanish solar growth to slow down this year," Barillas added, noting that battery development in Spain had been lagging behind solar.

"A lot of people didn't expect the amount of solar build-out we have seen [in Spain since 2021]," Barillas said. "Also, the revenue stack for batteries in Spain is not as robust as elsewhere in Europe."

Meanwhile, the Spanish government is preparing a new regulation to support the grid integration of batteries in the wake of the April 28 blackout, which is still under investigation.

"Renewables have grown faster than the grid infrastructure. Managing a renewables system is more complex, and there is no common understanding of the operational requirements for the grid in the Iberian market. There will be more focus on this in the future," Barillas concluded, adding that frequency response, voltage control, inertia, and other technical requirements would have to be quantified and procured to ensure the system can operate adequately with more renewables.

Solar headwinds in Spain

Meanwhile, investment fund Qualitas Energy, which divested parts of its Spanish PV portfolio in 2022 based on internal forecasts that predicted the significant solar penetration now seen, sees little improvement for Iberia.

"This influx was expected to lead to price cannibalization within the solar PV segment -- an outcome that has indeed materialized," said Julian Simon, head of Energy Markets at Qualitas Energy.

"The fundamentals for solar PV investment in Spain remain relatively weak, largely due to structural issues such as market saturation and price cannibalization during peak solar hours," Simon said in emailed comments to Platts.

"These challenges persist regardless of the recent blackout event," Simon added. "While solar PV in Spain faces specific headwinds, renewable energy investment -- both in Spain and across Europe -- continues to be a strategic pillar for the energy transition. We continue to see strong potential in solar PV across Europe, as reflected in our growing presence in markets such as Italy and Poland."

Hierarchy of curtailments

After Spain, Germany has the deepest penetration of solar across Europe and frequent episodes of negative prices.

However, solar in Spain is more price-responsive in terms of curtailment due to its higher share of merchant or PPA-backed assets, with curtailment exceeding 5 GW during 81% of negative hourly prices, according to analysts at Commodity Insights.

Commodity Insights forecasts Spain to see the largest volumes of solar curtailment, averaging 1.5 GW for the rest of this summer, according to a May 22 report.

Next summer, this is forecast to rise to 2.4 GW due to the lack of sufficient battery capacity.

Higher cooling demand supports solar during the summer, the analysts said in the report, which also looks at cross-border flows.

"The direction of flows potentially indicates that subsidized German solar capacity is, to an extent, squeezing out unsubsidized Spanish solar," it said.

Around 94% of Germany's solar capacity is subsidized under the EEG scheme, but support during negative hours is to be phased out with Germany approving the "Solar Peaks Act" which removes subsidies during negative hours for new plants.

Overall, curtailment of German solar doubled to 1.4 TWh in 2024, according to regulator BNetzA, with annual output around 59 TWh.

Challenging PPA economics

Sector association SolarPower Europe forecasts additions to stagnate at 66 GW this year, citing headwinds from grid constraints and weak residential demand.

Project costs are still supportive, but falling merchant tail revenue expectations have lifted solar PPA break-even price estimates.

Spain remains Europe's lowest-priced market for solar PPAs and has topped PPA ranking for the past years.

Platts assessed PV modules (50-100 MW, DDP Europe) at $0.095/W May 23, down from $0.13/W last summer.

Commodity Insights pegs PPA break-even levels for Spain in a range of Eur32/MWh to Eur56/MWh, according to a recent report.

"The range for the break-even PPA prices is wider, reflecting uncertainties ahead," said Bruno Brunetti, head of Renewables Revenue streams at Commodity Insights.

"While the merchant tail has been a key risk for developers in the valuation of a PPA, the level of output curtailment is increasingly coming into focus and is a major driver in determining fair price values. Assuming output is curtailed by 20% on an annual basis, breakeven PPA prices for a stand-alone solar PV could shift up by Eur10-15/MWh for a 10-year contract," Brunetti said.