AleaSoft Energy Forecasting, October 4, 2023. Interview by Julián García, from Energía Estratégica, with Antonio Delgado Rigal, PhD in Artificial Intelligence, founder and CEO of AleaSoft Energy Forecasting.
How do you assess the increase in renewable energy targets, both in Spain and in Europe?
The increase in renewable energy targets is a response, on the one hand, to the need to meet emission reduction targets, on the other hand, to accelerate the achievement of Europe’s energy independence, but also to the current rate of increase in renewable energy capacity.
In Spain, for example, the PNIEC’s 2030 targets for photovoltaic energy are well below the rate at which it is being installed, thus the new draft almost doubles this target.
There is no doubt that renewable energies, along with hydrogen and energy storage technologies, will play a key role in the energy transition.
Ambitious targets and incentives are necessary to drive the market and policy in the right direction.
Do you think there will be enough demand for this green generation?
Demand is the other side of the equation. It is difficult to get an idea of how much renewable energy demand growth is needed to decarbonize all sectors of the economy.
To get an idea of the scale, consider that only 25% of the energy used today is in the form of electricity. The rest of the final energy consumed comes mainly from fossil fuels (oil derivatives, gas and coal).
Therefore, the renewable energy demand will have to increase at least fourfold in the coming decades.
It is a paradigm shift. If we consider all renewable energy generation that will be necessary to electrify heating, transport and industry, and also to produce non‑fossil fuels such as green hydrogen, even more installed renewable energy capacity than the current targets may be necessary.
Which measures could be taken by public administrations?
Up to now, measures have focused on the production side: renewable energy auctions, subsidies for self‑consumption, etc.
To avoid an imbalance between production and demand, it is urgent to start promoting and stimulating demand: electrification of heating systems, electric vehicles, industry, etc.
It is also necessary to start creating demand for green hydrogen and the infrastructure needed for its production and distribution.
And the other key point that is lagging behind is energy storage. It is necessary to promote and subsidize the installation of batteries, adapt markets for the efficient operation of storage, and create a capacity market that rewards the facilities for the key role they will play in managing intermittent renewable energy generation.
Might we see an even deeper decline in demand if nothing is done?
Demand is still suffering the consequences of the 2022 price crisis, especially in the industrial sector, where demand continues to decline.
This decline in demand has also been influenced by the exponential increase in self‑consumption. Meanwhile, renewable energy has continued to grow at a very high rate.
From 2023 on, the growth rate of self‑consumption will slow down to a more reasonable level. Demand will also start to recover if prices continue to fall (helped by the increase in renewable energy) in the coming years.
Might this massive growth in renewable energy extend the hours when the marginalist price of solar energy is zero?
Over the next two or three years, there may continue to be more or less recurring zero price hours in some months.
Renewable energy will continue to grow, so the key is when demand will start to grow at the necessary rate and when the necessary storage capacity will be available.
Hence the need to broaden the focus: renewable energy is already growing at a high rate, now it is necessary to ensure that demand and storage also grow at the rate necessary for a balanced transition.
The transition underway is one of unprecedented scale and in record time, both for climate needs and for energy independence.
It is expected that there will be temporary imbalances like the ones we are seeing, but in the long term the situation will stabilize.
What impact might this have on the Spanish renewable energy industry?
Both curtailments and price cannibalization are the effects of the rapid increase in renewable energy generation without a counterbalancing increase in demand and storage capacity.
Looking at it with enough perspective, the market always self‑regulates around an equilibrium price: the balance between the price that demand is willing to pay and the price that makes production plants profitable in the long term.
Right now, we are in a circumstantial mismatch that drives prices to zero (or close to zero) at times when renewable energy production can meet a large part of demand.
The moment those prices are too low for renewable energy plants, the installation rate will slow down, and low energy prices will incentivize demand that will bring prices back to equilibrium.
Ultimately, beyond renewable energy capacity targets, it will be up to the market to say how much renewable energy capacity is needed as demand grows.
However, as we have said, it is important to have ambitious targets to guide the way and to decide which measures to take at any given time.