Massive expansion of photovoltaics in Germany: Sunshine is costing us more and more money

Editor’s note: This article was first published already two years ago in the German leading newspaper Frankfurter Allgemeine Zeitung (FAZ). The author presents it here in English for the first time, as the dynamics it describes have only intensified, making this early analysis more relevant than ever today.

Record after record on electricity exchange prices: for the first time in the history of the energy transition, there were negative electricity prices for consecutive days. 

What do negative electricity prices mean, and why have these records occurred? Driven by the massive expansion of photovoltaics, solar power production on sunny days is increasingly boosting the supply of green electricity from renewables to such a degree that domestic electricity demand is more than met. As with other goods, the consequence of this oversupply of electricity is a falling price — at least on the electricity exchange where solar power is sold, but not for private households, since in the vast majority of cases they do not have a dynamic electricity tariff that would allow them to benefit from falling exchange prices.

Oversupply of green electricity leads to price crashes and negative prices

At negative prices, consumers not only receive electricity for free. They are actually paid to take electricity. The reward can peak to as much as 250 euros per megawatt-hour. Negative prices are a clear indicator of inefficiency that costs taxpayers billions of euros annually, with a strongly rising trend due to the massive expansion of renewables, especially photovoltaics.

The cause of negative electricity prices is financial misdirection: even when there is an oversupply of electricity, wind and solar power producers receive a financial payment for every kilowatt-hour they feed into the grid, even though the electricity is not needed at all. On the contrary, green electricity is in fact highly unwanted in this situation, since electricity supply and demand must be in balance at every second. Otherwise, a blackout occurs.

Compensation payments for electricity not produced

To prevent this, there are — in addition to the urgently needed massive storage of electricity — three options that must increasingly be employed simultaneously: First, grid operators are permitted to curtail solar and wind farms in order to reduce electricity supply before grid stability is threatened. The operators of these parks then receive compensation for the hypothetically produced electricity, even though they are not actually permitted to produce any green electricity at all. Electricity consumers must foot the bill for these compensation payments — in the form of higher grid fees. In the second alternative, conventional power plants are ramped down to reduce electricity supply, if necessary at the behest of grid operators, and again against compensation payments at the expense of electricity consumers. The third alternative is the creation of additional demand through a reward in the form of negative electricity prices.

This third alternative costs the German economy particularly large sums of money, while primarily electricity consumers abroad — such as pumped-storage operators in Austria and Switzerland — benefit from it: at negative electricity prices, they are actually paid to use surplus electricity from Germany to pump water into their mountain reservoir lakes. During times of high electricity prices, they use the stored water to generate electricity and sell the power produced this way for good money — often back to Germany.

This is a doubly profitable business for pumped-storage operators, one that is by now well known and is possible not least because the storage of green electricity in Germany has been criminally neglected despite steadily increasing production. If, as a result of this and the financial misdirection, there are increasingly longer-lasting periods of negative electricity prices, pumped-storage operators might even get the idea of releasing stored water unused in order to continue earning money by pumping it back up during times of negative electricity prices — a business that perfectly illustrates the absurdity of excessive solar power production, for which only anecdotal evidence exists so far.

Negative electricity prices on every sunny day?

In fact, due to the massive expansion of wind power, but especially photovoltaics, and largely absent storage capacities, periods of very low or even negative electricity prices are occurring more and more frequently. Negative electricity prices used to be relatively rare, occurring mainly on Sundays and public holidays when electricity demand is lower than on weekdays. Already in May 2024, negative electricity prices occurred for the first time on a daily basis.

And it is — the phrase imposes itself — crystal clear that the frequency of negative prices will continue to increase if nothing changes in the financial incentives, i.e., the remuneration for feeding solar electricity into the grid even during periods of low electricity demand, and if photovoltaics continue to expand as massively.

Germany now has over 100 GW of installed PV capacity. This is significantly more than the maximum demand load of around 70 GW that occurs on cold winter evenings. On sunny days, solar power can therefore almost single-handedly cover daytime demand, which in summer is lower than 70 GW (Figure). As a result, well before the target of 215 GW of PV capacity is reached in 2030, every sunny day brings a solar power glut that drives down electricity exchange prices starting at around 8 a.m. and frequently culminates in negative electricity prices at midday, because operators of large solar parks generally have no storage facilities in which surplus solar electricity could be stored overnight.

At night, when the sun is famously not shining and therefore even 100 GW of PV capacity can contribute nothing to electricity production, it would be very helpful if, in the face of low electricity supply and therefore regularly high prices of over 100 euros per megawatt-hour, the stored solar electricity could contribute to meeting demand. As things stand, Germany regularly imports electricity from abroad at high prices during these hours.

This is an increasingly bad deal for Germany: at night, missing electricity is imported from abroad at high prices, and during the day, in the absence of extensive storage capacity, electricity must be exported abroad at bargain prices or even at negative prices. It is high time that the foundation of this bad deal — which gets worse by the day with every addition of photovoltaic capacity under current conditions — is removed as quickly as possible: through changes to production incentives and the construction of electricity storage facilities.

Runaway costs for green electricity

In any normal market, producers would have a problem if they had to pay to sell their product, and would quickly cease production. Not so with renewables: here, the state has guaranteed operators of wind and PV installations a fixed feed-in tariff per kilowatt-hour of electricity — at a fixed level for up to 21 years.

This remuneration is always paid, regardless of demand and regardless of what the sale of electricity on the exchange currently yields. The result is: the financial gap between the remuneration and the exchange electricity price grows wider the more sharply the latter falls. And this gap must be filled by the state through payments from the Climate and Transformation Fund. For other energy transition measures that are to be financed from the Climate and Transformation Fund — such as grid expansion — correspondingly fewer funds are available as spending on renewables increases.

The opportunity costs of this — i.e., what resources are thereby unavailable for other uses — can be vividly illustrated by the fact that the expansion of the railway network is now no longer to be funded from the Climate and Transformation Fund due to a lack of funds. Instead, additional loans must be taken out for this purpose, to be repaid through higher rail fares.

Negative electricity prices are just the tip of the iceberg

The hours of negative electricity prices represent only the tip of the iceberg, however. The gap between the feed-in tariff and the exchange electricity price is nearly just as large when exchange electricity prices approach zero. As a result, the funds earmarked in the Climate and Transformation Fund for the promotion of renewables — around 10.6 billion euros — fall far short of what is needed. With the continued unchecked expansion of photovoltaics, it is foreseeable that the double-digit billion euros earmarked in the Climate and Transformation Fund for the promotion of renewables will likewise be insufficient.

As a further measure, the government has planned a gradual reduction of the capacity threshold for mandatory direct marketing — from the current 100 down to 25 kilowatts — above which, instead of a fixed feed-in tariff, a market premium is paid, but the green electricity must be sold directly on the market by renewable energy installation operators. The market premium would compensate for the difference between the fixed remuneration agreed in auctions and the market price. These market premiums are to be eliminated in the future when negative electricity prices occur. [The measure is not yet fully rolled out as of 2026, as it applies only after several consecutive hours of negative prices]

With regard to the planned lowering of the threshold for mandatory direct marketing, Christof Bauer also sees only very limited effects. According to his analysis, 47 per cent of newly installed installations are currently subject to the mandatory direct marketing requirement. With the threshold lowered to 25 kilowatts, this would be 61 per cent. Only 14 per cent of new additions would thus be affected by the measure, while 39 per cent would continue to be entitled to the market premium even at negative electricity prices. It should be noted in passing that most rooftop installations belonging to private individuals would not be affected by the planned regulations. Such installations typically have a capacity of between five and twelve kilowatts.

This is urgently needed: storage, storage, and more storage!

Far more effective would be to motivate renewable energy installation operators to invest in electricity storage as quickly as possible. If new solar parks were no longer to receive feed-in tariffs, investors would invest in storage of their own accord — if they could no longer earn any meaningful return on their solar electricity during the day, but could sell solar electricity at night at higher prices than they would receive in daytime feed-in tariffs. After nearly 25 years of promoting photovoltaics through the Renewable Energy Sources Act (EEG) introduced in 2000, and in light of the sharply falling module prices and numerous examples of solar parks built without subsidies, it is now high time to stop supporting new photovoltaic installations through the EEG.

Investments in storage can be attractive for existing installation operators

Eliminating support for new installations would, however, only be of limited help. The problem of Germany's poor electricity trade balance already exists now and is caused by existing installations. Despite grandfathering provisions — a valuable component of the conditions for businesses locating in Germany — and the entitlement to feed-in tariffs thereby guaranteed, it could also be advantageous for operators of existing installations to invest in storage, if electricity can be sold at night at a far higher price than the feed-in tariffs paid for solar electricity fed into the grid during the day. This should apply above all to installations that have been installed since the auctions for renewable energy installations began in 2017, since the maximum support rates are significantly below 100 euros per megawatt-hour. In the June 2022 auction, for example, the maximum remuneration rate was 57 euros per megawatt-hour, or 5.7 cents per kilowatt-hour.

If operators of renewable energy installations were to invest massively in storage, this would have the advantage that daytime electricity prices on the exchange would no longer be driven down so sharply. Germany would no longer have to give away electricity to foreign countries so cheaply. The storage of green electricity would have the further advantage that the stored electricity could contribute to meeting demand at night, so that Germany would no longer have to import as much electricity from abroad at high prices.

Incentivising installation operators to invest in electricity storage would thus lead to a win-win situation for many parties in Germany — at the expense of the previous winners abroad. Policymakers should therefore consider setting investment incentives for the construction of electricity storage facilities among operators of renewable energy installations, whether wind or PV. It would be far better to support investments of this kind from the Climate and Transformation Fund than to impose ever-higher burdens on this fund by allowing the expansion of renewables — not least photovoltaics — to cause the costs of supporting renewables to rise year after year.

This article is also published on FAZ, in German. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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