The story behind Spain’s solar power meltdown
Pedro Sánchez calls his country a ‘global benchmark’ in the transition to greener energy, but prices — and profits — have plunged
The dusty terrain has been levelled by tractors and rammed with ranks of metal rods. They will soon support thousands of solar panels, rotated by mini-motors being screwed on by construction workers in 35C heat.
“Setting up a solar plant is ultimately like building a factory in the countryside,” says Miguel de la Rosa, an engineering chief for project owner Zelestra, as cable reels and crates of electrical gear imported from China sit in the dirt, ready for connection to the power grid early next year.
The project in Belinchón, a municipality 50km south of Madrid, is another tract of sun-baked Spain now blanketed by rectangles of black silicon, but it may also be the final echo of an era of breakneck growth.
Photovoltaic cells have been the building blocks of a solar power boom spurred by Prime Minister Pedro Sánchez, whose support for renewables, combined with Spain’s abundant sunshine, has driven a wave of construction. Since he took power in 2018, energy developers have built solar parks, proved that power generation had attractive returns and pulled in capital from yield-hungry investors.
In 2023 and 2024, Spain added more solar power capacity than any other European country except Germany, whose economy is more than twice its size. Aggressive bidding between competitors in the M&A market drove prices for existing projects ever higher.
At some times in spring, as much as 60 per cent of Spain’s electricity comes from the sun. That has enabled Spain to slash its use of gas and coal-fired power stations. Consumers have reaped the rewards, as cheap electricity frees the country from the angst elsewhere in Europe over utility bills.
Sánchez calls his country a “global benchmark” in the transition to greener, carbon-free energy as Europe, the world’s fastest-warming continent, bears the brunt of climate change. But the sunlit uplands of solar have begun to overheat.
Spain has built so much solar capacity that at certain times of day it produces far more electricity than it needs. Prices have plunged as a result, dragging down owners’ profits with them. Over the past year, “day ahead” wholesale electricity prices were zero or even negative 10 per cent of the time, according to data from grid operator Red Eléctrica. In May, they were at zero or below for one-third of the entire month.
Free power is gratifying for customers, but bad for generators. Some solar operators are told to shut down by Red Eléctrica to curb oversupply, via “curtailment” orders for which they are not always compensated.
The hit to profits has been compounded by another blow: the Iberian blackout in late April, which began in Spain and left 58mn people without power for at least five hours, and in many places for much longer.
The government has concluded that solar power did not cause the outage, but its prevalence in the energy mix is important context for what went wrong.
Investors and power companies said their doubts about the adequacy of the Spanish electricity system had been confirmed by the blackout.
They do not question solar’s essential role in the clean energy transition. But due to oversights or overconfidence, they say Spain has not adapted to its reliance on solar energy. Prices and demand are too low. Its grid and use of battery storage are behind the times. In a country that is a test case for renewables, the solar boom appears to have gone too far, too fast.
Legacy projects such as Zelestra’s are being completed, but a sharp slowdown in new projects is forecast for 2026. M&A activity has switched to fire sales. Solar projects that were selling for €200,000 per megawatt two years ago are now on the market for €28,000-€89,000, according to nTeaser, a deals marketplace.
“The sector is suffering the consequences of oversupply, which is having a very grave effect on the profitability of solar projects,” says Mario Ruiz-Tagle, who heads the Spanish business of Iberdrola, Europe’s largest utility.
Yet the building is supposed to continue apace. Today Spain has 36GW of total solar capacity and the government’s target is to reach 76GW by 2030.
“What the government says in its road map is one thing,” says Pablo Martínez, Iberia lead at Modo Energy, a data provider. “But the industry and the price signals in the market say something else.”
When Sánchez became Spain’s Socialist prime minister, he ended a run of barren years for renewables. A previous leftwing government had used subsidies to encourage an incipient solar sector but, as the Eurozone crisis deepened, a subsequent conservative administration swiped away that support in 2012-13 as part of efforts to reduce public debt.
Sánchez helped restart a solar boom by committing himself to decarbonisation and easing some permitting. He did not offer subsidies — neither the kind of clean energy tax credits in Joe Biden’s now semi-repealed Inflation Reduction Act in the US, nor the fixed price guarantees that the UK offers renewable generators.
What mattered to investors was Sánchez’s assurance of no more U-turns. But the blackout that hit at 12.33pm on April 28 highlighted the shortcomings of a vital part of the system: the electricity grid.
The government has blamed the outage on mistakes by both Red Eléctrica and the utilities that run gas and nuclear power stations, saying they failed to damp down a voltage surge on the grid. But its official report noted something else: the surge was linked to instability at a solar plant. At 12.03pm, an unnamed facility in Badajoz in western Spain produced an “anomalous” oscillation in grid frequency — the rate at which the electrical current alternates. It was so big it registered in France and Germany.
The presence of a solar plant in the causal chain was telling. No longer is the Spanish system centred on a few dozen fossil fuel and nuclear plants whose huge turbines are located close to urban demand hubs. Instead, it relies on a web of smaller renewable plants dispersed across rural areas, including 54,000 solar installations. They generate power intermittently, depending on cloud cover and the rotation of the earth, and do not help to stabilise grid frequency and voltage in the same way as giant gas and nuclear turbines.
“This transformation has pushed the grid to the limits of the generation mix,” said José Bogas, chief executive of Endesa, a big Spanish utility, in May. But, he added, “we have continued to operate the system as we used to”.
While Spain has championed investment in solar parks, the grid has been neglected. According to BloombergNEF, it has been Europe’s stingiest grid investor since 2020, putting only $0.30 into the grid for every $1 invested in renewables, versus a pan-European average of $0.70.
“Spain was very early and very fast with renewable deployment, but it has not been as speedy as some others with planning,” says Axel Thiemann, chief executive of Sonnedix, an international power producer that generates renewable energy in the Iberian peninsula.
The authorities had been happy to see renewable energy production rising while grid costs, which generally get passed on to consumers, stayed affordable, says one executive at a big energy producer who asked not to be named. “They exhausted the economic model to the most cost-efficient point,” the executive adds. But the blackout showed “there are no free lunches”.
As long ago as 2017 a group of European grid operators, Entso-e, warned that the growth of renewables risked creating instability in the grid and called for the deployment of devices that mimic the stabilising function of turbines, known as grid-forming inverters. Portuguese grid operator Ren, whose system was dragged down by the Spanish outage, made concrete proposals for investments in shock absorbing equipment in a December 2024 plan.
But Spain’s minority government acted only after the network collapsed, unveiling new “anti-blackout” legislation in June. “There’s been more regulation in the past few weeks than in the past five years,” says Iberdrola’s Ruiz-Tagle.
Joan Groizard, Spain’s secretary of state for energy, told the Financial Times that “we’ve reflected not only on how we reinforce the electricity system now, but how we prepare a system that will continue to evolve” up to 2030.
The legislation gave Red Eléctrica a long list of new orders, requiring it to do more to control voltage, to deploy new technology, and to use extra leeway to adapt its planning when circumstances change.
But Groizard adds a caveat. “Let’s remember that the key opportunity here is price competitiveness. If I massively increase investment in the grid without any clear criteria, and as a result drive up costs on electricity bills, I will no longer be competitive.”
On July 22 that point became moot. The legislation was voted down in Spain’s Congress in a rebellion led by both conservatives and the hard left, who complained the government was not holding anyone to account for the blackout. The government is now trying to achieve some of the same goals via regulatory reforms that do not need parliamentary approval.
“What happened was a serious act of irresponsibility on the part of the groups that voted against the bill,” says Sara Aagesen, Spain’s deputy prime minister and energy minister.
In some ways, Spain’s solar energy boom is a victim of its own success.
In spring and autumn, the sun is still strong enough to maximise solar output, but mild temperatures mean consumers have no need for things like air conditioning or heating.
The result is that the day-ahead electricity price set by OMIE, the Iberian market operator, falls to zero or below. On May 11, the spot price hit a record low of minus €15 per megawatt hour.
But that does not mean every generator is giving away electricity for free. Power producers have pioneered the use of long-term supply contracts, known as power purchase agreements (PPA), which they sign with corporate clients for 10-20 years to secure price stability.
Zelestra’s Belinchón project, a 150MW facility planned last year when the market was less strained, has a deal with a group of pharmaceutical companies including Takeda and Teva. When it was signed, the average PPA price in Spain was €39 per megawatt hour, according to Our New Energy, a services group.
But zero prices in the spot market remain a problem, says Zelestra’s Moreno, because they make clients less inclined to sign solar-only PPAs.
Spain has limited options for the surplus energy on its hands. Exporting large volumes to the rest of Europe is unfeasible because its grid links to France are limited. So the solution to the glut is storage.
Several power producers, including Rolwind, Grenergy, Sonnedix and Zelestra, are now switching their attention to batteries. Their bet is that charging them during solar hours and discharging them in the evening will do two things: lift daytime prices off the floor and give them more electricity to sell profitably at peak hours.
“The operators of existing plants know that to defend themselves against the price curve they need to install batteries,” says Luis Marquina, head of Aepibal, a battery trade group.
Others argue batteries are not a panacea, in part because they cannot match the vast capacity of hydro plants that store energy by using it to pump water uphill. But in recent years both California and Australia, big generators of solar power, have successfully used batteries to flatten out prices.
In Europe, the UK has installed 5GW of battery capacity while Italy has 1GW, according to Rabobank. Energy executives say that Spain — with only 60MW of battery capacity — has again been behind the pack. One obstacle is a slow permitting process, says Moreno, even when batteries are just being added to an existing solar plant.
Another complaint is that while batteries can help prevent blackouts by providing backup generation or voltage control, Spain — unlike the UK — has not set up a regulated market where owners can get paid to offer those services.
Measures to tackle those barriers were a pillar of the anti-blackout legislation. But while it remains blocked, and the alternative regulatory reforms are pending, some investors say there is too much financial risk in batteries.
Shuffling supply and demand around during the day masks a more profound challenge: Spain’s overall electricity consumption is flat — no higher last year than it was in 2004.
Hopes have been pinned on industries abandoning natural gas and using green electricity to generate heat for ceramics, glassmaking or food processing. This is on top of bold forecasts for electric vehicles and heat pumps replacing gas boilers.
“Electrification has not been as fast as we would have hoped in Europe overall, but in Spain in particular. In a rational world you would say low prices incentivise consumption and that has not happened,” says Sonnedix’s Thiemann.
Power utilities counter that industrial demand for cheap power is emerging, but cannot be satisfied because the grid does not have enough capacity.
The bottleneck is in securing an access point from Red Eléctrica, because the petition process is clogged. Utilities had to reject 34GW of 67GW in requests last year, says Aelec, a trade group that represents Iberdrola, Endesa and EDP.
One-third came from data centres and US tech giants including Amazon, Meta and Microsoft have all announced big Spanish projects that require huge amounts of power. “There is an enormous appetite from the data centres,” says Moreno. “They consider Spain the number one place to go in Europe.”
But the companies will face familiar obstacles. “Grid interconnection? It’s going to take a long time to assess. Permitting? It’s hard,” he adds. “The interest is real. The speed at which they can actually build is uncertain.”
Spain’s problem is not that its solar boom went too fast, “it’s that the government has been too slow”, says another energy executive.
Energy minister Groizard demurs. The rejected anti-blackout bill sought to resolve the grid access problem by prioritising genuine projects — and the regulatory initiative replacing it tries to do the same.
More generally, he argues that generation capacity had to be built before demand would follow. By his rationale, solar oversupply and zero prices are not a failure, but “transitional” phenomena that are now attracting industry as they were meant to.
“There will be a balance between supply and demand at competitive prices,” Groizard says, “within just a few years.”
