Why negative energy prices are becoming more common in Europe

• Negative energy prices are becoming more common across Europe.
• The latest instance occurred in Germany on Tuesday.
• Prices generally slip into the red when both solar and wind generation is strong on the same day.

Europe's energy prices are trading in negative territory with increasing frequency, and it's because of strong solar and wind generation in the region.

In the latest example, Bloomberg reported that power prices in several markets slid below zero for Wednesday. For instance, Germany's day-ahead auction on Tuesday fell under zero for six individual hours, according to cited data from Epex Spot SE.

Since consumer rates are typically agreed on ahead of time, this doesn't mean that households are receiving reimbursements for their power use.

Instead, day-ahead auctions concern raw energy. When prices turn negative in this market, it signals a meaningful imbalance between electric supply and demand, caused when solar and wind generation is strong at the same time.

It's an extension of Europe's substantial investments in green infrastructure. The continent installed a record amount of solar panels last year, to reduce its reliance on Russia's natural gas.

Germany has been a recurring point of reference, as the country has added more solar capacity than demanded by consumers, SEB Research reported in May.

In 2023, solar capacity in the nation reached 81.7 gigawatts, topping a demand load of no more than 52.2 gigawatts, the note said.

Meanwhile, Bloomberg cited that Germany's wind generation is set to reach its highest average level in four months on Wednesday, reaching 22.7 gigawatts.

This summer, energy prices also turned negative in France, causing nuclear plants to go offline in June. Reactor shutdowns are not uncommon, however, and have also occurred in Spain and Scandinavia.

Part of the reason solar and wind generation is creating such inefficiencies is a lack of battery technology to store the produced electricity. That means that consumers may not even be benefitting from lower day-ahead prices, as they often consume more energy in non-solar hours, SEB said.

The research cautioned that suppressed pricing could eventually pull back investment in solar infrastructure. Solar prices would instead benefit if more funding was channeled towards batteries and the grid, it said.

This doesn't mean that Europe's appetite for solar generation is slipping.

According to Reuters, Eastern European countries now lead solar expansions. In the first seven months of this year, utility-run solar output jumped 55% from a year ago in Austria, Bulgaria, Hungary, Romania, and Poland.