Germany’s rapid expansion of solar power capacity has led to a supply glut, pushing energy prices into negative territory during peak production hours, according to a new report from SEB Research.

The report states that in the past 10 days, solar producers in Germany have had to accept an 87% price cut during their peak production hours. In fact, prices have fallen well below zero when solar generation is at its highest.

On average, solar producers have received only 9.1 Euros per megawatt-hour, compared to 70.6 Euros paid during non-solar power hours.

“This is what happens to power prices when the volume of unregulated power becomes equally big or bigger than demand: Prices collapse when unregulated power produces the most,” the Swedish bank wrote in its analysis.

Germany’s total solar capacity topped 81.7 gigawatts by the end of 2023, far exceeding the country’s demand load of 52.2 gigawatts. This widening gap between supply and demand is particularly acute during the summer months when solar production peaks but overall electricity consumption is lower.

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While consumers may not directly benefit from the low prices, as they typically use more power during non-solar hours, the situation poses a challenge to the profitability of solar producers.

SEB chief commodities analyst Bjarne Schieldrop warned that unless new solar installations are supported by subsidies or power purchase agreements, the depressed profitability could eventually slow Germany’s solar expansion.

Instead, the focus is likely to shift towards improving energy storage and grid infrastructure to better utilise the abundant solar power generated, which could then drive prices back up and enable further growth in solar capacity, Schieldrop said.