Solar and market prices: focus on Southeast Europe

In this post, I will focus on Southeast Europe (SEE) defined as the six Western Balkan countries (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia) and four EU countries (Bulgaria, Croatia, Greece, and Romania). The objective is to present the region, analyze the extent of the solar increase, and suggest some thoughts.

Potential for solar in the region

Together with the Iberian peninsula, Italy, and Southern France, Southeast Europe is well-positioned for solar generation in Europe. As we can observe on the map below, there are however much better places for solar outside of Europe in its direct neighborhood (North Africa, Turkey, and the Levant). This proximity to places with great potential for solar means that Southeast Europe and especially Greece could be a gate to green electricity into Europe.

Europe is not the best place for solar.

Southeast Europe is principally formed by the Balkan Peninsula, a territory surrounded by water, except in the Northern part.

Southeast Europe as considered in this post

Day-ahead markets in the region

The four EU countries of the considered region have a day-ahead power exchange¹ and they are all part of the Single Day-ahead Coupling (SDAC). Concerning the non-EU countries, Serbia has had a power exchange for several years, while Albania, Montenegro, and North Macedonia have just started recently. Kosovo will soon join the Albanian power exchange and Bosnia and Herzegovina is still working on establishing one.

First signs of volatility

Recently, for the first time, negative prices have been recorded in Romania. It happened during the week 20 of 2023, see below. From the graph below, we can observe that the low prices are happening during the day when the sun is shining. These low and negative prices were caused mainly by the excess solar generation and the typical low demand in May and during the weekends.

The region is also not isolated and it is well integrated into the whole European market. They are very much influenced by larger markets, especially since their combined size is relatively limited. Indeed, the total electricity consumption of these 10 countries is 222 TWh per year, lower than the electricity consumption of Spain.

Week 20 of 2023: all markets getting to zero during the weekend and BG/RO on Friday as well.

The lowest prices observed were on Sunday 21 May 2023 at 1 PM.

Records were achieved on Sunday 21 May 2023 at 1 PM.

It is worth noting that solar capacity is for the moment much lower than the average load (see table below).

Solar - current and future

Solar is expected to grow fast in the region. SolarPower Europe has a review of the solar market for EU countries but not for the six Western Balkan countries. Nevertheless, the four considered EU countries represent 70% of the total electricity consumption of the region. The table hereunder summarizes some data². Key elements are:

• Solar capacity in 2026 will triple in four years and will be higher than the average load according to the forecast of SolarPower Europe.

• The growth is mainly driven by Greece and Romania.

• Western Balkan countries, except Serbia, are relatively small players compared to their EU neighbors. Serbia represents 15% of the electricity consumption and the five other countries of the Western Balkans, another 15%.

The data on solar for the Western Balkans have not been added, except for Albania (see the analysis here). The current solar penetration is low for the moment but it will also increase relatively fast as several projects have been announced. Nevertheless, it is likely that the solar penetration in these countries will only be a fraction of the whole Southeast Europe region.

Greece, the regional champion

The main driver for solar growth in the region is Greece, one of the sunniest countries in Europe, since the country is on course to install half of the solar in the region. By 2026, solar energy is expected to reach 15.9 GW of peak capacity, almost three times the average load of the Greek grid. Therefore, solar energy would produce a surplus on a regular basis. Due to its geographical location, Greece is not so well interconnected with neighboring countries, except towards the North (Albania, North Macedonia, Bulgaria, and Turkey). There is also one submarine HVDC line to Italy but it is rather limited for the moment with a capacity of only 500 MW. This is therefore not surprising that Greece is pushing Europe to invest massively in transmission grids.

In a letter from the Greek delegation to the Council of the European Union, Greece is pushing for a faster rollout of interconnections, especially from South to North, as the sunny South presents some complementary seasonal behavior with the windy North. They also emphasize that the Western Balkans should receive a focused initiative for three reasons:

(a) Expedite the transition in the region, (b) enable the generation of renewable energy in countries like Greece, Bulgaria, Romania, etc. by increasing their ability to send electricity to the rest of Europe, and (c) facilitate the importation of electricity from the Eastern Mediterranean and from Egypt and the broader North Africa region into Southern Europe and, from there, into Central Europe where it is most needed.

Greece is surrounded by water, interconnections are all located in the North.

Greece is therefore looking to export massively its green energy and also be a gate for green electricity from the Eastern Mediterranean region. Therefore, the country is looking to expand interconnections with all neighboring countries, including with more distant ones via the EuroAsia Interconnector linking Greece, Cyprus, and Israel. Nevertheless, this 1-GW submarine cable will most probably be used to export solar power as Cyprus is already having a substantial amount of solar capacity and Israel is planning to expand its current 5 GW to 17 GW by 2030. There are also plans to connect Greece to Egypt.

Greece is set to import even more solar energy from Cyprus and Israel, both countries with great potential.

Final thoughts

What can we therefore expect for the region?

1. Similarly to the rest of Europe, solar will increase drastically in the coming years with Greece being the frontrunner. Greece will therefore export its electricity surplus from solar on a regular basis.

2. Day-ahead markets would face high price volatility. Extreme differences from zero (or even negative prices) to above 100 EUR/MWh within the same day are likely to occur, especially in periods with lower demand and high solar irradiation. Any counterbalancing technology (storage, demand-side response) will likely be installed at a much slower pace than the current increase in solar.

3. Flexible assets would be more valuable. Hydropower with large reservoirs and pumped-storage hydroelectricity will likely be more valuable.

It should also be emphasized that this increase in solar energy in the region is a very positive as it will reduce the use of fossil fuels and most notably, coal, which is still used extensively in the region for electricity production.

1. Links to the power exchanges: Bulgaria, Croatia, Greece, and Romania.

2. Electricity consumption is based on IEA, the population is based on World Bank. For solar, Albania is my own calculation, the light blue is directly taken from the SolarPower Europe report 2023-2026 and the dark blue values are based on the expectation of SolarPower Europe that Bulgaria and Croatia would reach their NECP target for 2030 in 2025.