OSLO/PARIS (Reuters) - Europe has clocked a record number of hours of negative power prices this year due to a mismatch between demand and supply as solar power generation soars, potentially helping to shift investment to much needed storage solutions.

Wholesale power markets in most of Europe's key economies turned out zero or negative prices for a record number of hours in the first five months of this year at times of low demand. That means producers more frequently have to pay to offload power, or stop their plants.

"One could certainly say that, at this point, success is consuming its own offspring," Markus Hagel, energy policy expert at German utility Trianel, told Reuters.

Strong hydro and nuclear power generation has played some part in the oversupply, but Europe has also seen a massive expansion of solar power.

Installed solar capacity in the European Union more than doubled to 263 GW between 2019 and 2023, according to SolarPower Europe data. In 2023 alone, that is equivalent to an extra 306,000 solar panels being installed every day, the group said.

In the day-ahead market, this has seen more European markets experience price drops at the lowest demand point in the middle of the day.

Trianel told Reuters the company has invested in 800 megawatt (MW) of photovoltaic capacity and has a project pipeline of 2,000 MW but the lower prices are forcing it to reconsider how it sells the power.

Solar has boomed in part because it no longer required subsidies as developers agreed power purchase agreements (PPAs) with buyers at fixed terms pegged to wholesale power market prices.

This allowed for a faster and bigger build-out than previous capped volume auctions for government-backed payments.

But as prices fall, developers are increasingly turning back to subsidy schemes again, Hagel said.

Negative prices are nothing new for Germany, which hosts Europe's biggest capacity of volatile solar and wind power generation, but 2024 is the first year Spain is seeing them, after several years of strong solar power growth.

"It is not something that worries us at the moment. What does worry us is that it will be repeated or can be repeated over time," José María González Moya, director general of renewable lobby APPA Renovables, said, adding that new contracts for PPAs are already declining.

"And yes, in a way, investment is slowing down. Not stopping, but slowing down," Moya said.

Germany and Spain are still leading the PPA market, Jens Hollstein, head of advisory at PPA pricing platform Pexapark, said. However, solar producers were being forced to sell their power at increasing discounts to round-the-clock generators.

"The margin is getting thinner," Hollstein said.

He expected a slowdown in investments if the development continued.

On the flip-side, the power market is now seeing a bigger gap between low and high-priced hours, increasing the incentive to invest in storage, he added.

INCREASING BATTERY STORAGE IS KEY

The International Energy Agency (IEA) highlighted the urgent need for energy storage in an annual report.

"Developers who choose not to co-locate their wind and solar PV power parks alongside battery storage or other sources of flexibility may see a drop in potential revenues during peak generation - hampering profits and discouraging investment," the IEA wrote.

The EU estimated that energy storage in the bloc will need to rise more than three-fold from 2022 to 2030, to match projections of a 69% share of renewable energy in its electricity system by then.

Norwegian renewable energy producer Statkraft, which operates across Europe, has said it could divest some wind and solar projects, but would likely hold onto its battery assets.

"For batteries it will be positive to have greater volatility and also negative prices," CEO Birgitte Ringstad Vartdal said, as batteries can be charged when prices are low while output can be sold when prices are high.

"That is one of the reasons why flexible projects will be attractive," Ringstad Vartdal added.

Besides storing energy in batteries to deal with periods of excess supply, other options like AI-powered smart grids and meters could also help consumers optimise their electricity use.

Domestic end users, plagued by the surge in energy costs in the wake of the Ukraine war, have yet to enjoy lower bills because often they are locked into long term contracts.

Only those consumers that have invested in a heat pump, a charger for their electric car, or a storage system, are able to benefit from negative prices, spokesperson for Germany's association of local utilities VKU said.

Those on fixed priced contracts will only feel a positive impact from negative power prices once they have pulled down average market prices over the long term.