In 2024, Europe has clocked the largest number of hours when electricity prices have been negative in the wholesale market. This literally means that there is excess supply and that power producers have to pay the distribution companies to evacuate the surplus power. Negative prices, however, are nothing new in Europe and have been reported for about 15 years. It’s just that the frequency has gone up and is now plaguing more countries in addition to Germany which has witnessed this phenomenon in the past. Negative prices, however, may not mean a bonanza for retail consumers since their tariffs may be locked in long-term agreements.

There are several reasons for the low (or negative) price for electricity; the most important is that there has been a phenomenal growth in renewable generation, especially solar and wind. In addition to this, generation from hydro and nuclear plants has also been good. The installed capacity of solar plants has doubled from 2019 to 2023 as the capacity in Europe went up from 119 gigawatt (Gw) to 263 Gw. Apart from the increase in supply, there has been a fall in demand due to a mild winter which means less electricity is demanded for space heating. Successful adoption of energy conservation measures has also contributed to the fall in demand. The decline in demand is stark on weekends due to the closure of some industrial/commercial establishments. The massive growth in renewable capacity has ensured that the share of renewable sources to total generation has reached 44%. The share of solar and wind alone is about 27% of the total, and wind generation has surpassed gas for the first time. There has been a noticeable fall in generation from fossil fuels, which has led to a decrease in carbon emissions from the power sector.

Electricity prices in the wholesale market would be very different if storage batteries were to be economically viable today. Although battery costs have come down drastically (from almost $800/unit in 2013 to about $140/unit in 2023), there is still a long way to go. To put it in simple terms, the levelised cost of electricity in respect of batteries is about Rs 7 per unit in the Indian context, which means that it is still quite expensive for large-scale adoption. Recently, there was a case where the levelised cost of battery came down to about Rs 5 per unit. Actually, it is all a function of how much de-risking has been done by the organisation issuing the tender. Any perceived risk would be hedged, increasing the cost of storage.

The author is tempted to digress a bit and mention a few words about competing battery technologies. Today, the market is dominated by lithium-ion batteries. Lithium as a resource is concentrated in a few countries and when it comes to processing, it is largely confined to China. This raises serious supply chain issues. As an alternative to lithium-based batteries, we have the sodium-ion batteries and sodium batteries have several advantages over lithium ones. Sodium is available in abundance, unlike lithium. Sodium batteries are cheaper than lithium by about 30%. They can operate within a large temperature range and can be charged/discharged many times more compared to lithium. Sodium batteries are not hazardous since they are not liable to catch fire, unlike lithium.

Lithium has other drawbacks; for example, such batteries use minerals like cobalt, nickel, and graphite which suffer from supply chain issues. Cobalt, incidentally, is concentrated in the Democratic Republic of Congo and there are several reports highlighting exploitation of labour vis-à-vis its mining. Despite all the advantages of sodium-based batteries, lithium batteries rule the roost. Partly the reason is that lithium batteries have had a head start and have the benefit of economies of scale. Incidentally, both lithium and sodium-based batteries are similar in design and hence anyone making lithium ones can switch to sodium without much effort. Some reports peg the market value of lithium batteries at $270 billion in 2030, whereas the corresponding value of sodium is only $920 million. Lithium batteries have a higher energy density, meaning that for storing an equivalent amount of energy they will be smaller in size compared to sodium. Consequently, lithium is more appropriate for use in transport vehicles, especially for long distances.

To come back to the topic of electricity prices turning negative, what emerges is that renewable generation has become a victim of its own enthusiasm. Due to the lowering of wholesale prices, profit margins are getting thinner and investments in the renewable sector is slowing down in Europe. The moral of the story is that growth in renewable generation has to be in tandem with the economics of batteries. It’s not really a chicken and egg story, and a fall in battery prices are a precondition for adding to renewable capacity and not the other way around. Adopting fanciful targets, in isolation, like tripling of renewable capacity by 2030 (as done at the COP28) without looking at the cost of batteries just does not make sense.

Finally, batteries are not the only form of storage. We also have pumped storage plants (PSPs) and gas-based generation though they may not be viable in all countries. India is a good example where there are very few functioning PSPs (approximately 4,000 megawatt) as well as a very limited availability of domestic gas for power generation. Gas, of course, can be imported but it’s not economically viable given the high price of this resource in international markets. One may like to add green hydrogen as another medium for storage but, unfortunately, it is no more than a concept as of now, quite contrary to the optimism that is being generated. Green hydrogen is difficult to produce, difficult to store, and difficult to transport, apart from a host of other issues. So, as far as India is concerned, we have to rely mainly on batteries, and guess who we will be dependent on for this? The answer is China, which is the world leader in not only lithium-based batteries but sodium batteries as well.

The author is senior visiting fellow, ICRIER and former member (economic & commercial), Central Electricity Authority.

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