AleaSoft Energy Forecasting, March 31, 2025. Interview by Ramón Roca, director of El Periódico de la Energía, with Antonio Delgado Rigal, PhD in Artificial Intelligence, founder and CEO of AleaSoft Energy Forecasting.
For those who do not know you yet, AleaSoft has been providing services for European energy markets for more than 25 years, based on a forecasting methodology using Artificial Intelligence, which is very fashionable nowadays. How does AleaSoft apply AI in its forecasting models? What are the advantages of this approach for price and demand forecasting?
As you say, at AleaSoft we pioneered the application of Artificial Intelligence for price forecasting in energy markets more than 25 years ago. Our methodology combines Machine Learning algorithms and recurrent neural networks, both within the field of AI, with various classical statistical techniques, such as time series analysis, Box‑Jenkins, SARIMAX models, regression and econometric models, as well as fundamental models and simulation models of supply and demand curves. This hybridisation takes advantage of the strengths of each approach and overcomes the limitations of using them in isolation. The result is a hybrid methodology that learns from past patterns and also from model errors to correct them and reduce their impact. Our methodology is able to determine the equilibrium price in historical market data and project it into the future based on forecasts of model variables.
An example that we like to show to illustrate the results of our models is a long‑term price forecast for the Iberian electricity market that we made in 2010. Despite changes in the generation mix, such as the massive entry of renewable energy and the disappearance of coal, as well as unforeseen events such as the COVID‑19 crisis, the energy crisis resulting from the war in Ukraine or the introduction of the 7% generation tax, this forecast is still valid fifteen years later.
Long term price forecast of the Iberian MIBEL electricity market carried out by AleaSoft at the end of October 2010.Source: AleaSoft Energy Forecasting.
In the current context of volatility in the energy markets, what trends do your price forecasts for the Spanish electricity market expect for the coming months and years?
We expect the yearly average price in 2025 to be higher than in 2024, although in the coming months, during the spring, prices will be below those registered in January and February. Low prices during the spring are a common situation in the peninsular electricity market. The combination of falling demand and increased renewable energy production will put downward pressure on prices.
Higher prices in 2025 will be conditioned by several factors. On the one hand, the evolution of gas and CO2 prices. Although gas prices have fallen from their levels at the beginning of the year, the European Union’s reserves are below 35%, which will imply a high demand for their replenishment during the summer. Europe will need a large amount of liquefied natural gas (LNG), which is a global market under pressure from rising demand from Asian countries, putting upward pressure on prices.
On the other hand, the behaviour of renewable energy will also be decisive. In the coming months, the El Niño and La Niña phenomena will be neutral, which could translate into abundant rainfall during the spring, boosting hydroelectric energy generation. In addition, there will be the seasonal increase in solar photovoltaic energy production until the summer, accompanied by a decrease in wind energy generation.
In the coming years, the decarbonisation of energy‑intensive sectors, such as industry, transport and heating, will lead to a significant increase in electricity demand. In addition, new demand will come from data centres and, in the longer term, from green hydrogen production.
A very important factor in the Spanish electricity market in the coming years will be the closure of the nuclear power plants. The first two reactors currently scheduled for closure are those of the Almaraz plant in 2027 and 2028. Initially, the reduction of nuclear energy in the mix will be filled by the production of combined cycle gas plants, which will put upward pressure on prices and increase volatility.
How might a peace in Ukraine affect European energy markets? Can that be assessed in any way?
The main impact of a peace in Ukraine on European energy markets would be on gas prices. In recent days, one of the reasons behind the fall in gas prices has been the possibility that, with a peace agreement, Russia will resume gas supplies to Europe, which could lead to lower gas prices and, consequently, lower prices in European electricity markets.
However, in the current context of negotiations, it seems unlikely that the European Union will lift sanctions on Russia, at least in the short term. Everything will depend on the evolution of the talks and the terms that are set to achieve the much‑needed peace in Ukraine.
In any case, Europe should have learned the lesson and, regardless of a possible drop in gas prices, stand firm in its commitment to renewable energy and energy storage. This would not only boost the energy transition but also strengthen its energy independence.
How can companies in the sector and consumers, especially large and electro‑intensive consumers, prepare for market uncertainty?
At AleaSoft we always recommend a strategy based on diversification, both for producers and large consumers of electricity, especially the electro‑intensive industry.
One of the main strategies for mitigating market price risk is the signing of PPA (Power Purchase Agreements) to ensure stability in the purchase or sale of energy with a long‑term view of prices. In addition, there is the possibility of hedging in the futures markets to manage price risk.
For some consumers, having a self‑consumption installation can be a good option to mitigate their exposure to market volatility. Moreover, with the progressive reduction in the cost of batteries, their use in self‑consumption installations is gaining relevance, allowing surplus energy to be stored and subsequently consumed at times when there is no production or when market prices are high.
To complement a diversified energy purchase strategy, it is also interesting to be able to buy part of the energy on the wholesale market to be able to take advantage of moments of lower or even negative prices.
There is currently an intense debate in Spain on whether to extend the lifetime of nuclear power plants. What is your opinion on this measure?
The decision to extend the lifetime of nuclear power plants should be based on profitability criteria and their impact on security of supply. The date of 2027, when the first reactor, Almaraz I, is scheduled to close, is fast approaching. If the schedule for the closure of all plants is maintained, there is little time left to replace the energy produced by the 7 GW of nuclear capacity in Spain if this is to be done without increasing CO2 emissions and guaranteeing security of supply.
As mentioned above, the closure of the plants will mean an increase in price and volatility. Initially, the gap they leave will be replaced by the production of combined cycle gas plants, but in the medium term it represents a great opportunity for renewable energies such as solar photovoltaic and wind energy. Increased price volatility in turn will also be an opportunity for batteries, which will also play a key role in security of supply and price stabilisation.
The capacity market is expected to start operating this year after several years of waiting for it. How can this market boost the development of energy storage in Spain?
The implementation of the capacity market will provide a boost to the deployment of batteries in Spain. Although we estimate that most of the revenues from energy storage will come from price arbitrage in the day‑ahead and intraday markets and from participation in ancillary services, at least during the first few years, revenues from the capacity market will be an additional source of income that will contribute to achieving and improving the profitability of the projects.
Speaking of energy storage, what role will battery energy storage systems play in the coming years for the profitability of solar photovoltaic power plants? What impact will batteries have on the electricity market and on ancillary services? Are you providing services for battery projects?
Since the webinar we held in October last year, we have been stressing in all the forums that we are at a key moment for the electricity sector: a turning point coinciding with the change of five‑year period. The five‑year period that ended in December was marked by the boom in solar photovoltaic energy. Now, the five‑year period we have started in January will be the period of batteries, both in stand‑alone installations and in hybrid projects with wind and photovoltaic energy.
The hybridisation of batteries with renewable energy, whether photovoltaic or wind energy, will reduce renewable energy curtailments, increase the prices captured by the plants, improve the IRR of the projects and increase profits in the long term. In our experience advising on battery projects, depending on their size, batteries can contribute between 25% and 50% of the annual revenue from the day‑ahead market in a hybrid system with photovoltaic energy.
In addition, the integration of batteries will contribute to reducing the number of hours with low, zero or negative prices, thus favouring the development of renewable energy.
We have our AleaStorage division, specialised in the preparation of forecasting reports for battery projects and storage projects in general, including the revenue and profitability calculation for different storage configurations: stand‑alone and hybrid systems with renewable energy, self‑consumption, hydraulics, pumping and cogeneration. We also carry out the sizing of the optimal battery in hybrid systems with renewable energy.
It is still very important to continue to develop renewable energies. However, the drop in electricity market prices in 2024, especially in the hours when photovoltaic energy is producing, caused some slowdown in the PPA market. How is it evolving in recent months?
We have recently seen an increase in interest in PPA, driven by the recovery of market prices in late 2024 and early 2025. From our position as market advisors and through our PPA Marketplace, we observe that buyers are once again showing an appetite for long‑term contracts to minimise the impact of market price volatility.
In this sense, the growing supply of renewable projects hybridised with battery energy storage systems is allowing PPA to be structured with better, more stable profiles, which is especially valued by offtakers who are looking for profiles as close as possible to their consumption profile.
Now, with the arrival of spring and the fall in prices, it is possible that interest in PPA will drop again. It is important to change the mentality about PPA, some offtakers often think in the short term, guided by the ups and downs of prices in the spot market, and do not take advantage of opportunities to close in the long term at a better price.
Now comes the time of photovoltaic energy curtailments, what do you expect for these months in terms of technical and economic curtailments? Will we see a lot of negative prices?
This year we are likely to continue to see frequent episodes of low or negative prices during the spring. From our position as market advisors, we observe that the structural factors that favour this phenomenon persist: although electricity demand shows signs of recovery, there is still a need to promote further growth.
On the other hand, despite the growing importance of storage, its deployment is still incipient and still insufficient to absorb the surplus of renewable energy generation at times of low demand. Moreover, high hydroelectric energy production is likely to return this spring, which will add further downward pressure on market prices and increase the likelihood of curtailments.
If we want renewable energy development to continue, it is very necessary to continue to drive demand electrification, with data centres, electric vehicles and heat pumps, accelerate the integration of storage and continue to strengthen electricity grids.
How do you see consumers playing a greater role in energy markets?
The energy transition cannot be achieved without the active involvement of consumers. It is essential that we become aware of our role and adopt a proactive attitude in demand management. Technological development, the advance of Artificial Intelligence and digitalisation now offer us all the tools we need to do this efficiently.
Self‑consumption and distributed storage will also play a fundamental role in enabling consumers to manage their consumption and optimise the price at which they access energy. This growing role of the consumer will contribute to a more flexible and efficient electricity system.
What challenges does Spain face in meeting the decarbonisation targets?
Some of the main challenges have already been discussed. One of the most relevant is the necessary take‑off of energy storage. We are facing a great opportunity: the cost of batteries continues to fall in a context in which greater volatility is expected in the electricity market due to the planned shutdown of the two reactors of Almaraz. Replacing nuclear energy with zero‑emission generation requires accelerating both the deployment of renewable energy and storage systems, which will also help to reduce renewable curtailments.
It is also important to incentivise the growth of electricity demand, boosting the development of data centres, electric vehicles, heat pumps and green hydrogen.
Finally, it is essential to strengthen the electricity distribution and transmission grids and make progress in international interconnections. We continue to be an energy island in Europe, and this limits both our security of supply and the efficient integration of renewable energy.
Looking ahead to 2025, what goals have you set at AleaSoft to continue growing and adding value to the energy sector?
Looking ahead to 2025, at AleaSoft we have set ourselves the goal of continuing to consolidate our role as market advisors, offering our clients services that help them make informed decisions in the face of the great challenge of the energy transition.
Everything points to the current five‑year period being the one of batteries and hybridisation, which is why one of our main focuses is on services for energy storage, helping our clients to design their projects in an optimal and efficient way, estimate expected revenues and evaluate their profitability with a long‑term vision.
In addition, we maintain our commitment to global expansion by relying on our six divisions, with which we cover all needs of the sector: forecasts for all time horizons, strategic consultancy, support for project financing through our PPA and renewable assets and projects Marketplaces, updated information through our online database Alea Energy DataBase, as well as through our analysis publications and our monthly webinars, in which we have the participation of leading companies and influencers in the sector.
In short, we want to continue to be a reliable partner for all players in the energy sector, adding value with knowledge, experience and strategic vision.
Source: AleaSoft Energy Forecasting.
