Investors who have been pouring funds into Spain's thriving renewable energy sector may consider scaling back their investments as early as 2024, warned the association of renewable energy companies on Monday. The crux of the issue lies in the declining profitability linked to depressed wholesale electricity prices, a challenge that needs to be addressed promptly to sustain investor confidence.
This cautionary message arrives at a crucial juncture when Spain is racing to accelerate the deployment of new renewable capacity to meet its ambitious green energy targets. Some of the country's major utilities, including Endesa and Naturgy, have already indicated a slowdown in renewable energy development due to high interest rates and escalating debt costs.
The exponential growth in renewable energy capacity has led to an increasing role for cost-effective solar and wind power in setting electricity prices. However, when these sources reach their peak capacity, market prices experience a significant drop, impacting the profitability of energy producers. This phenomenon is commonly referred to as the “renewables cannibalization effect.”
Jose Maria Gonzalez Moya, the Director General of the APPA Renovables association, voiced his concerns and urged the need for corrective measures. “If we don't correct that, investments will slow down or disappear,” he cautioned, emphasizing that this scenario could unfold as early as next year or the following if unaddressed.
Moya underscored the importance of implementing robust energy storage systems to manage periods of excess energy generation and mitigate the challenges associated with renewables cannibalization.
In 2022, Spain witnessed a significant milestone by adding a record 8,918 megawatts (MW) of renewable capacity, according to data from the association. To achieve the ambitious targets outlined in a draft update of the government's climate plan, where renewables are expected to generate 81% of the country's electricity by 2030, an annual addition of 11,000 MW is essential through the end of the decade, according to Gonzalez Moya.
