Belgian Solar: shining a light on value challenges

"The Belgian solar PV sector is entering a challenging phase. With solar penetration rates increasing due to massive capacity additions—rising from 6.5 GW in early 2023 to 10 GW by May 2024—Belgium now ranks 5th globally in installed solar capacity per capita. However, two concerning trends are accelerating in 2024: decreasing captured value and increasing imbalance costs. These factors, exacerbated by the cannibalisation effect and rising imbalance price volatility, are significantly impacting solar producers' revenues, potentially leading to negative net values for some. While market changes and increased flexibility may offer some relief, the current trajectory poses a threat to the sector's development."?

The Belgian solar PV sector is entering a pivotal phase. With an ever-increasing penetration rate, driven by substantial annual capacity additions, the landscape is rapidly evolving.?

Impressive growth stats

• Early 2023: 6.5 GW?

• End of 2023: 8.8 GW?

• May 2024: 10 GW (inverter power monitored, actual panel capacity is even higher!)?

These milestones have catapulted Belgium to the 5th position globally for installed solar capacity per capita. This remarkable growth underscores our nation's commitment to renewable energy and sustainability.?

It is also bringing some challenges, with 2 phenomena accelerating at a fast pace, especially in 2024:?

• Decreasing captured value?

• Increasing imbalance costs?

We’ve analysed public Elia data to uncover these trends, focusing on the day-ahead forecasts (11 am) and the actual measured production. The captured values mentioned are thus applicable to an average Belgian solar PV installation injecting 100% of the electricity produced on the grid.?

Captured value?

The captured value is the turnover a solar PV asset generates by selling its electricity on the hourly spot market, usually expressed in €/MWh or as a percentage of the spot baseload average price (capture rate). Due to their non-dispatchable nature, solar assets tend to produce simultaneously, impacting short-term market prices. As more solar energy floods the grid, prices drop during sunny hours. Essentially, solar is reducing its own profitability — a phenomenon known as the "cannibalisation effect". The graph below illustrates a clear decline in solar captured value as a percentage of spot prices. Notably, 2022 was an outlier due to the energy crisis, with prices soaring during summer when solar production peaks, leading to exceptionally high capture rates.?

Imbalance cost?

The imbalance cost reflects the cost endured by the Balancing Responsible Party (often the supplier) to balance a solar asset. The BRP forecasts a solar asset's production, sells this volume on the day-ahead market, and then faces the 15-minute imbalance price for any deviation from the forecasted volume.?

Key insights:?

1. Steady forecasting accuracy: Solar production forecasting accuracy has been stable, suggesting little room for improvement in this area.?
2. Increasing imbalance price volatility (see below graph): Imbalance price volatility relative to day-ahead prices is rising. The graph below shows the quarterly distribution of the spread between day-ahead and imbalance prices, indicating a clear upward trend (excluding the outlier quarters of 2022 and 2023 due to the energy crisis).

The bottom and the top of each box represent respectively the 25% and 75% quantiles. The middle bar represents the median observation. The clear structural volatility increase trend, explains why, at steady forecast performance, the imbalance cost keeps constantly increasing (see next graph). Again, 2022 is to be considered an outlier for the reasons explained above.?

Impact on solar producers?

In Belgium, most B2B solar injection supply contracts are indexed to the hourly spot market, reflecting 1:1 the cannibalisation effect on the producer's invoice. Imbalance costs arrangements vary, with some contracts passing the full imbalance cost to the producer and others offering a fixed cost (in €/MWh or €/period). However, as imbalance costs rise, contract renewals will reflect these increases.?

The below graph shows the evolution of the net captured value of Belgian solar (combining the cannibalisation effect and imbalance cost). The trend is not that clear in €/MWh as the average spot price level heavily impacts the net value. However, the net value expressed in % of spot prices shows a clear decrease (excluding 2022 as explained above).

What about 2024??

2024 year-to-date numbers are more concerning, as the trends explained above are rapidly accelerating and even leading to a negative net value in May. Meaning that the average solar producer with an hourly spot-indexed contract and passthrough of imbalance, had to pay its supplier for the electricity injected on the grid.

As mentioned, the above graphs show values for an average Belgian solar PV installation injecting on the grid 100% of the electricity produced. But most Belgian solar injection happens after local self-consumption, which leads to lower captured value (injection concentrated around noon) and higher imbalance cost (lower predictability due to behind-the-meter consumption and lower injection volume on which to pay back the total imbalance cost), resulting in an even lower net value: probably already negative in March and April for residual injection solar.?

On top, 2024 shows a very low solar insolation year-to-date, every month being less sunny than the previous 5 years' average. So, on top of a low unitary value, Belgian solar also had a deceiving volume produced.?

The below graph shows the number of solar hours per month in 2024 (representing the number of hours needed at full capacity production to reach the monthly production).?

It is hard to conclude what the effect of more solar insolation would have been during the past months. One could argue that prolonged sunny periods would have made more affordable nuclear or CCGT curtailments on the one hand and triggered consumption for air conditioning on the other hand, altogether reducing the oversupply during solar hour production and the cannibalisation of its revenues.?

The graph below shows that, in any case, the impact on the spot hourly prices shaping was already massive in May 2024 vs. the previous 5 years:?

Looking ahead:?

While current market trends pose challenges for solar producers, several factors could reverse these trends:?

• Spring months are always tricky in a fast ramping-up market, as we lack perspective on the installed capacity since the last sunny periods several months ago.?

• Market changes such as Picasso (aFRR EU market coupling) and Mari (mFRR) may reduce market volatility.?

• The introduction of a 15’ intraday auction will also certainly help to reduce imbalance price volatility and increase liquidity (although this might mainly be a cost switch from the imbalance to the day-ahead market).?

• Elia's implementation of an imbalance price forecast improves data transparency.?

• The current Belgian electricity market shows huge untapped value in terms of flexibility, the significant pipe of grid-scale battery projects should materialize quickly.

Recommendations:?

Solar producers should consider the following strategies to navigate these challenges:?

• Demand side management: Shift loads to times when solar production is high or market prices are low.?

• Battery storage: Enhance self-consumption of renewables and capture additional market revenue. It is worth reminding that this article focuses on grid grid-injected value of solar, but the economics of self-consumed solar production remain of course way better, allowing for savings on the total electricity bill (including grid costs and taxes).?

• Curtailment and dynamic steering: Curtail assets during negative day-ahead prices and dynamically steer assets in the imbalance market to generate extra revenue.

Curtailment of solar used to offer only a slight increase in the total turnover over the last years, but the picture is changing rapidly in 2024 with more revenues saved from curtailment in a few months than in average per year in the past.?

• Finally, solar grid injection can make a lot of sense if dimensioned to match a corporate grid offtake exposed to spot markets on other sites, it offers a long-term baseload electricity price hedge and justifies investing in more solar capacity. The same works with third-party CPPAs.?

"At AYA, we assist energy-intensive companies in navigating the challenges of increasing solar penetration and market volatility. Our advanced data analytics and predictive insights enable businesses to optimize energy consumption, reduce imbalance costs, and mitigate the impacts of cannibalisation. With AYA, you can maintain profitability and sustainability even in fluctuating energy markets."?