Tumbling wholesale power prices throughout Europe may not fully recover until 2025, a new report has claimed.
The study, compiled by UK-based Aurora Energy Research, provides four models under which power prices on the continent will recover from the 30 – 40% collapses witnessed following the onset of the COVID-19 pandemic.
And while a mild COVID-19 scenario would see prices recover by 2022, a severe recession triggered by the pandemic would not see price recovery for another five years, a factor which would potentially have a serious impact on subsidy-free solar business models throughout Europe.
The scenarios – mild recession, severe recession, and two depression scenarios – have been investigated to cover the economic spectrum that might arise due to COVID-19. Factors taken into consideration in these scenarios include the duration of lockdowns, demand, supply, commodity prices and investment and financing.
Markets with a large share of gas are expected to see a more significant impact from the recent fall in commodity prices.
Felix Chow-Kambitsch, head of commissioned projects- Western Europe at Aurora Energy Research, said: “The effect of Coronavirus has rippled through European energy markets – significantly reducing demand and prices of gas and electricity.
“European power utilities are likely to experience a significant fall in revenues in 2020, with merchant-exposed renewables schemes significantly affected.”
Renewable energy projects may be hardest hit, according to the research firm. Whilst subsidized projects will see revenues partly or full protected by the government despite the fall in market prices, the drop in expected revenues will impact existing renewable schemes and possibly delay new schemes.
Renewable projects that are being developed on a merchant basis, conversely, are likely to see more severe and longer lasting impacts, Aurora outlined, including large portions of GB’s pipeline. The firm estimated that around 34GW of renewable developments could be at risk across the seven countries featured in the report.
These projects could see their revenues fall by 20-50% depending on the severity of COVID-19.
The fall in demand could also create challenges for power system operators across Europe in balancing the grid as the proportion of renewables will be higher than usual. Already in the UK, solar has broken a generation record and surging renewables caused a significant drop in power prices earlier this month.
Fears have been expressed throughout Europe for the potential for heightened power price fluctuations to delay merchant power solar projects, with gigawatts of solar currently sitting in pipelines across the continent.
Yesterday UK-based investor The Renewable Investment Group (TRIG) warned that its power price forecasts showed a 25% reduction throughout 2020 and 2021, with an average reduction of 17% to be felt between now and 2025.
May 26 - May 27, 2021
Looking at the drivers and dynamics of utility scale solar in the UK & Ireland over the next five years. This event will consider the immediate challenges as we enter the build phase in both these markets where we could see as much as 4GW deployed in 2021 alone! What developments will continue the growth of 100MW+ sites and what impact will government policy have on the rate of deployment in both markets?Join leading developers and manufacturers shaping the direction of one of Europe’s most active markets and hear from speakers with a history of influencing innovation and change.
Feb 03 - Feb 04, 2021
The business of solar is changing, as the industry scales up, technology, IT and new players to the market will add complexity. This sparks a host of opportunities such as co-location of solar and storage and the rise of unsubsidised solar projects as well as challenges which will question the very business model of European solar asset owners. Solar Finance & Investment Europe is the meeting place for institutional investors, sovereign wealth funds, solar, wind and storage funds and large energy buyers to do business.