Solar Saturation & Grid Collapse: Spain's BESS Opportunity - Modo Energy

I'm your host, Ed Porter. Welcome back to Transmission. Spain has nearly 40 gigawatts of grid scale solar, but more generation hasn't meant better returns or a more stable grid. And solar's dominance hasn't automatically been followed by storage. Today, Pablo Martinez, MotoNG's head of Iberia, joins us to walk through what's really going on in the Spanish market. The economics, the blackout, the regulatory shifts, and where the batteries are finally about to catch up. If you want to dig into the Spanish market, co, MotoNG's AI analyst is a great place to start. Link in the description. Now onto the episode. Hello, Pablo. Welcome to Transmission. Have a good week here. It's super to have you on, and let's dive straight in. So what's the one thing that everyone gets wrong about Spain? So Spain, I think, when you look at it from the outside, most of people go like, "Okay, Spain, lots of sun, therefore lots of solar." And that must mean good business for batteries. And this is not necessarily true. We've got a very significant solar fleet. We built over the last six, seven years, really. But the dynamics we're seeing in power markets are very different to what we've seen to the rest of Europe. Okay. But it is true, lots of sun, lots of solar. There's 35 gigs of solar, maybe more. So in terms of utility scale, it's close to 42, do you want of solar? And then when you add the rooftop on top of that, it goes all the way to 50. So there is a lot of solar. But then the question mark is, okay, well then how does that translate to good power prices for battery storage? So where is it falling over? Let me reframe it. So what do people usually get wrong about Spain? It's not like we don't have storage. We have lots of storage through Pamp Hydro. And I think that's the main difference compared to most European countries in which we, Spain as a country, go that way without having best battery and the storage for so long because of the river liability on Hydro. Well, let's do that. Let's paint the picture for listeners in terms of how much there is of each generation technology. And then also let's also look at demand as well because that's the other kind of part of this equation. So we've done solar 42 gigawatts of grid scale. Let's do gas and hydro. So gas, it's very significant fleet of gas generators. CCTs, it's close to 26 gigawatts. Hydro assets, we've got run of river, we've got the bigger assets that kind of store energy for longer periods of time. That in total, let's say close to 18 gigawatts of generation, depending on the time of the year. Then on top of that, it's 32 gigawatts of wind. And in terms of demand, we're talking about 40 gigawatts of big demand, which I think it's similar to GB. Very similar to GB. I think we're probably, if you're on the wind solar balance, we're going to be higher on the wind less on the solar. But yeah, very similar in terms of demand. So there are definitely parallels between the two. What about nuclear? Nuclear. So we have a few nuclear plants closing down in GB. Longer term, we'll have things like Hingley Point C size, we'll see some small modular reactors. So longer term in GB, potentially like lower end is between seven to 10 gigs. If we get more of the government's plan in terms of more SMRs, that could be adding another 15 gigs, 20 gigs to that to that size. So we're not actually sure what the definitive long term view looks like in GB. But quite a few of those nuclear sites are closing down today. And so it's a bit of a handover process going on. What does what does nuclear look like in Spain? I'd say it's completely opposite. So we've got seven nuclear reactors at the moment. So seven gigawatts of generation. But the idea is to close them down. Or at least this is the current government's plan. Having said that, nuclear generation, it's key to grid stability. So this kind of base load generation that runs 24 hours a day, seven days a week. It's great for good grid stability. This kind of base load that you can rely on. And this is especially true for when we've got periods of lower demand. So for example, during spring or during autumn, demand is lower. And dualcy, especially in spring, that nuclear reactors want to do their maintenance there. And then the grid becomes a lot less stable because of this. Well, let's really talk about that because the bit we didn't talk about in demand. So when we're doing the Spain to Great Britain comparison, in Great Britain, all of our load really comes in winter for heating. And because we get like long period of darkness. So traditionally, like I really win the driven demands system in Spain, not quite the same, right? Because you get big air conditioning that comes through in the summer. So do you want to describe the dynamics of that? Yeah. So in Spain, we have these seasonal dynamics in which spring and autumn are periods of the year in which we will see less demand. Much more so in spring that in autumn. And then we will see demand rise in winter because of the need of heating and in the summer because of the need of cooling down. So this is interesting because so in GB or Germany, for example, it's something that we see a lot more that demand does not rise as much in the summer. And in Spain, what we're seeing is that during the summer, it speaks solar generation. But at the same time, prices don't necessarily grass during solar hours because demand rises so much more. And we see that same thing right in Texas and California in Australia because the solar generation is matched quite nicely with the air conditioning load. They don't get that kind of crash off in prices. So that crash off in prices in Spain happens in spring. One of the sort of really sort of shocking stats that I've read recently is around the capture rate for solar in February for Spain was 1 euro 30 cents per megawatt hour. So what like for people who don't look at that all the time, does is that exceptionally low, how low is that compared to usual? What does that mean for solar projects as well? So I think it's interesting to compare properly is how much does it cost to deploy a new solar. So building a solar side, you could be talking about terms of cost and the returns you would expect for it to be profitable. It would need to be in the range of 30 to 35 euros per megawatt hour. So if you're getting those returns from your solar asset, then it's reasonable business. So if you compare that 30 to 35 to the capture price in February, which was just 1.3 euros per megawatt hour, that's extremely low. And then what does this mean for renewable developers? What we're seeing is this kind of new dynamic. And we've been seeing this over the last two years in which the returns from solar assets during spring are extremely low because of lower demand. But also with the last two years have been extremely wet. So lots of rain in Spain and Portugal have made it so that hydro assets behave like any other renewable. So lots of hydro generation pushing prices down and making those, especially during solar hours, those prices very, very low. So if you are a solar asset owner, you kind of got used to, okay, spring returns are very, very low. And then I need to make my business case during the rest of the year. And let's just be frank. So that 1 euro 30 is almost like the low point of the year. So the average capture rate for solar is slightly better than that. But it is still quite shocking. So do you think that the 40 gigs or so of solar we've got in Spain now? Do you think that's at the peak that it will ever be? Or do you think we're going to sort of the still momentum in the pipeline was going to be added? Because it feels like if I'm being paid one one euro 30, I probably shouldn't add more. And this is interesting. And it comes down on how these assets are really paid. Of course, we see some merchant assets that get paid from selling their electricity in the wholesale market, in the day head market. But also most of these assets will have some kind of PPA contract. So what that means is that they will get paid a fixed price regardless of the market price. And here we're seeing an interest in the dynamic and this contract evolve over time. Because let's say legacy contracts did not necessarily account for negative price hours. So we're seeing some contracts that during those hours do no settlement. So basically you go from earning your strike price, let's say 35 euros from megabatt hour to zero. The moment the price turns slightly negative. Okay. And maybe within that you're also saying that the price has also been negative at times within Spain. Have you got a rough idea of how many times that's gone negative so far this year? That's close to 200 to 150 hours. Sure. If you compare the number of negative hours so far this year to other European countries, Spain's way ahead. But just because February it's been very rainy month. And overall the month has not been as high. Okay. And it's just on those PPAs, right? Because sometimes we have this conversation and somebody says, oh, the wholesale rate has gone low. But I've got a PPA so I'm protected. And I think it's really interesting thing because yes, you are protected. But you've passed the risks to someone else. Someone else is still getting. Someone else out there is still buying solar at 35 euros per megabatt hour. And the value of that on the market is still 1 year or 30. So they still like so you might not lose the developer who sold it but the person who's buying that PBA they are definitely losing. Yeah so two years ago Captur Price for solar on a yearly basis it was close to let's say 42 euros per megawatt hour. Last year 2025 the Captur Price was close to 34 euros per megawatt hour and now this year 2026 it's likely going to close below 30. So Captur Price for this technology is dropping and what we're seeing is that PPA prices reflect that. So if you're looking to sign a new PPA contract now it's very unlikely that you find an opportunity above 30 euros per megawatt hour. And this is interesting because as I mentioned earlier when you look at the cost of deploying this technology the their returns that you're getting they're below the cost of deploying your solar. So if the economics makes sense we should see a slowdown in solar deployment just because of market signals. Are we saying that? Not necessarily. So what we're seeing is so last year 2025 we deployed 80 euros of new solar so record deployment in a year and this year 2026 we could see another six gigs added to the system. This is not because the people that are bringing these assets online think that the business case is great. We're seeing clear saturation signals in the market but if we've learned anything is that the solar industry has a lot more momentum that everyone thought. So these developments take a long time. When you've spent so so many resources it might be worse to stop completely than to bring this asset online. And now what we're seeing is that people that can have the ability to do so are trying to steer into collocation with storage for example. Okay and I think that's that's a really interesting thing right so you were saying right with a pure play solar ppa I probably couldn't get that sign today or I've already did it sort of down to us to say the 30-year-old mark but you're then saying okay people are going right I need to do something else with that site I've got solar on it maybe I could add storage to it and instead of just doing the solar hours this site could do the solar hours and some extended hours from the storage and together that makes a much more attractive proposition for the ppa that someone will be buying. So are you starting to see the market and make that turn away from just like the pure play solar? Absolutely so it's not only new new developments that we're seeing they're trying to collocate with solar but existing solar assets they're looking at battery storage as a way out of this solar profile so at the moment the market is flooded with solar production solar profiles and you need to get creative on how do I fix my solar exposure or how could my production shape change when I add a battery on top of that that would be only thinking about the energy generation but when you add a battery storage to your solar site then all of the sudden you're onboarding more flexibility and you're tapping into flexibility services for the grid so ancillary services and other markets that the battery could participate in extra revenues. Okay we're definitely going to come back to ancillary services later on as we invariably like march towards talking about the Iberian blackout from last year but we're going to move that slightly later to the conversation actually just want to take this kind of trend through right so Spain has got a really good track record of building solar actually like I think sometimes when people think about Spain they think about sort of slower deployment and yet 5, 6, 7, 8 gigs of solar being deployed each year is a really good track record but less of a track record installing batteries how many batteries have we got today and why has Spain struggled to get batteries installed? So at the moment connected to the grid I'd say it's less than a hundred megawatt of battery storage compared that to GB so at the moment in GB 6, 6, 6 gig watt so it's completely different order of magnitude. Yet we've seen lots of appetite from local developers international investors to push for battery storage in Spain and there are a few things that so people usually look at Spain and they're like oh regulation it's not great for batteries should they be looking to deploy capital somewhere else and this might have been true two years ago but 2025 we saw lots of regulatory changes in favor of storage so now collocating with storage and deploying battery projects should be a lot more straightforward. There are a few last things to iron out in terms of regulation and this has to do with flexible connection and how those batteries charge from the grid. There's right now a proposal from the regulator they're taking a look at this. Hopefully this gets resolved within the next few months. All of the sudden we find ourselves in a place in which it's a lot more straightforward too. You forgot the solar asset you collocated with a battery the battery gets charged some kind of charging rights and you're good to go. I think it's pretty interesting to see the system kind of pivot towards getting those batteries in from the regulatory point of view on the money side so you mentioned that sort of obviously there are international players looking at the Spanish market. Where is the money coming from? Is it sort of your traditional players in Spain or is it kind of starting to come up as one of the hot markets of Europe that people want to cash into? Right now talking with the different players in the market I can clearly see two different types of investor so the more aggressive investor and they're happy with the battery business case. If they've done it in other markets they have the experience they have the exposure. They're looking at Spain. They're like oh the fundamentals are great. Ancillary services returns look great as well. Let's deploy capital and let's do it as quick as possible before these markets can evilize over time. And then the local developers or the people that did not have as much experience with batteries they're looking at this like it's an alien. It's a completely different asset class. This is nothing like solar. How would they optimize this? How would they earn money with satan asset? It is actually crazy right. So in some systems globally like California, Texas, Australia, Great Britain and some extent places like Germany are moving very fast on this where it's become almost second nature to think about putting battery storage in and yet still in some markets where we're still in the early tens or hundreds of megawatts. As you say people look at this battery project and go what the hell is this? I'm not familiar with it. I understand it. It always surprises me that the global standard hasn't moved as fast as maybe it should do. We'll see. Now we've mentioned ancillary services a couple of times which is around providing additional services to the grid for eG stability. To cover this topic let's start with the Iberian blackout and recently we had a report which was the complete report summarizing what went wrong. So Pablo what went wrong in Iberia? I think maybe more interestingly for me what can we do or what can the system do to get more stability in the future? The main reason behind the area blackout was voltage control and voltage issues. What triggered the blackout eventually was that voltage was getting out of control in very specific parts of the system. So we saw ceilations moments before the blackout but also hours before the blackout. The TSO was already taking the right steps into stability in the grid. The blackout originally started in the south. There was meant to be thermal generators coming online to mitigate this effect. A few moments after the blackout or a few minutes after the blackout. I think this especially there was one CCT that was meant to be scheduled and running one hour after the blackout happened. So it's not like there were no signals. The grid was in a very clear unstable position and the TSO was taking the right steps to mitigate it. Also talking with France, talking with Portugal, hey we're seeing these oscillations. Because they're disconnected and you can do things with your interconnections to give you most ability. But then all of the sudden what we saw is that because voltage some plants started to disconnect. That triggered voltage spikes on very specific tones of the grid. What we saw is that generators started disconnected to protect the assets. What this creates is an effect in which voltage spikes, generators disconnect and all of the sudden you're losing a very significant amount of your generation in the system. So frequency drops, if there's less generation, the grid tends to slow down frequency drops and then you've got also other protections in the system so that more generation and more demand disconnects. Very quickly you find yourself in a situation in which you're missing very key parts of the grid and everything falls after that. So I think that's a really good explanation of what happened. I think that has been covered and thank you for covering it. I think that's been covered a lot in various places including a very detailed comprehensive report. You'd like to read it. But I think what's What's more interesting is, in a system of the future, and with the options available to us today, how do we get a system like Spain, but this can also apply to lots of other grids, how do we get those types of systems to be more secure and more stable? Yeah, so what happened right after the blackout was that the TSO started managing the degree in a very different way. So lots more of gas generators, CCTs, terminal line, these synchronous generators provide voltage control and inertia to the system by default. So if you've got lots of CCTs connected and running, you are find yourself with a much more stable grid, but if you're doing that, you are displacing renewable generation from the grid in order to allocate those thermal generators, right? And we've been running like this for quite a while now, and the idea is, okay, how do we revert back to what we have before without compromising grid stability? And what we saw is that right now we've had within last year, we've got a proposal and now the market is up in place, it started to work last week for a voltage control market. Okay. So it used to be that assets provided voltage control services on a mandatory way. So the system operator is stepping in and telling that plant to run? Not necessarily, so you needed to provide it, and then you trust the asset owners to have the right tools in place to do so and work within a specified range of active and reactive power as you are injecting power into the grid. And now that part remains, but they've added a market on top of that so that you can participate if you want to earn extra remuneration for that service. And interestingly, there was before, it was not necessarily specified how if you did not comply with voltage control regulation, you would get penalized. And now they've done so. So moving forward, renewable assets will also be doing this kind of grid stability service and also get paid for it. I like this approach a lot because making it market based means that over time, the best technologies are doing so should, in a way, pull ahead, reducing the reliability on thermal generators to be providing this kind of voltage control stability services. So in today's world, if you're not necessarily paid for it, there's no signal for it, you'd go, okay, well, I'm going to have a type of inverter that's known as a grid following, which does what it sounds like it follows the grid. You can also have a grid forming inverter, right, which is a voltage source, which is the kind of the key difference. And that allows you to contribute more to voltage markets like voltage control, which sounds like I've said, voltage a lot, possibly way too much. But I think that is quite an exciting thing, right, because then I was looking at the technical restrictions or the technical actions that are taken by the system operator in Spain. As you say, many more technical actions were taken after the back out to make sure we had thermal plant running. Wouldn't it be nice if instead of having to rely on some of the thermal plant for that we could rely on grid forming inverters. Either from a battery could be on a solar side, it doesn't really matter where it's from, but the inverter technology needs to be there to be able to contribute to those voltage markets. Yeah. So, if anything, the only issue with this new market, so the market design is great, but the remuneration is, let's say, on the lower side. Okay. So, at the moment, you've got a service like this in GB and maybe you can give a little little bit more detail on that. The utilization for that service, it's close to 3 euros or pounds per voltium per reactive in Spain. So it's 3 to 1, very, very low remuneration for the reactive service. So it brings the question, like, is there even a point in participating in this market? And the interesting thing is they framed it so that if you participate in this market on the voluntary side to it, you get priority of read this patch. So what this means is that if your solar asset, it's in lots of curtailment, especially, let's say, during the summer. So, June, July, lots of solar generation, not all solar assets can inject into the grid at the same time. The TSO will step in and reduce the solar production of some of these assets. If your asset is one of the ones helping the grid because of voltage control, then you will get that priority of read this patch. So the value really, it's not on the reactive service itself. It's on the active energy that now you're able to produce that you would have otherwise lost. Yeah, that's super interesting. And I suppose imagine if you're then under like a PPA structure, taking a spectacular earlier part of the conversation, even if the power price is low, your PPA, because you can flow volume through your PPA structure, you might still get paid. And so there's like extra value that comes out of that. It's hard to untangle. You ask for a version from the GB side. Yeah, absolutely. I mean, one thing that the GB system, an RTSO transmission system operator, is doing extremely well, is looking at each of these parts of the market, whether it's short circuit level, whether it's voltage control, and we're putting that into a market. And I think this is that then allows people to then structure products or structure sites, batteries, solar, whatever it might be, to then go and provide these services. I think that is a really good blueprint for nearly all system operators, which is to say, you probably system operator without being rude. You don't know all of the potential sites that are out there, and all the potential technologies that can come through, and all of the potential configurations of inverters that you might be able to use. And in the absence of that information, make a market, and then see what comes through. And then you'll get much better information about what can provide these things. So I really like the approach, as you say, if you only pay sort of in the order of one euro for it, then yeah, there's a question mark where the people will actually do it. But let's see, let the market run, let the market find a level, low prices secure for low prices. So we shall say. Having said that, as of today, as we're starting with this new market, I think in this first round, 80 assets are complied with the requirements and started to provide the service. And then there's close to another 300 trying to comply and participate in this market. So there's a clear drive from asset owners to enable and participate in this service. Okay. Okay. Which brings me on to my last question. So, probably I'd like a contrarian view from you about the Iberian market. Oh, more broadly, you could go European, if you like. What's the contrarian view that you hold? Based on the latest geopolitical events we've seen, I've seen a lot of people in Europe talk about our dependency on gas and gas prices. And usually people point at Spain, as Spain has done such a good job of decoupling from gas prices. And there's a caveat to it. Like, if you're only looking at the day ahead market and the power prices, sure, we've done a very good job at reducing our dependency on gas. And these days, it's very rare for gas generators to be clearing their beads in the day ahead market and therefore selling their energy in the day ahead market. That's like 5 to 10% of the time. Yeah, very little throughout the year. But having said that, what we're seeing is a very significant activation from these gas generators, as we mentioned, especially after the blackout through technical restrictions and technical restriction markets. So it's not like Spain is not using gas or not running lots of gas generation. It's still very much embedded in the system and the way we minus the grid, it's just not showing on the headlines because it's not on the head market. Yeah, this is so interesting, right? So, I'm sorry this is getting a bit niche for people, but please do bear with it because I think it's a really interesting concept, right? Which is that essentially in most markets, your gas units will get turned on in the day ahead market. So the day before and when that market clears, you're given instructions to the gas units to run. And then what that'll do is it sets the sort of day ahead price at whatever the gas level is, which so then people say, oh, gas is connected. The price of gas is connected with the price of power. And if gas prices are very high, as they are at the moment, then consumers end up paying more money for that. What you're saying is that actually sometimes those gas units, because they're not really needed for energy, they don't clear in the day ahead market, but the system operator still needs them. And so in like a balancing market closer to delivery, they get called on, but that doesn't set the power price. That goes into a separate sort of bucket around sort of balancing costs. I actually wonder if that's a bit of a blueprint as we get sort of further away from the market exists today. I think a few systems might actually look at something like that where they take the technical, the technically needed gas units for whatever reason they needed, try and take them out of day ahead market. So they have less influence in there and try and move them more into like a balancing type service. Absolutely. In fact, so this would be one step, right? So you're removing this thermal gas generator from the system in the day ahead market, because as you said, the energy itself is not as needed anymore. And now we're in this second phase in which they're still needed for a grid stability. Then what the third phase might look like is that as we, as we mentioned, voltage control market or balancing services such as within the European framework, we call it Picasso. So FRR, so frequency response services. As we have more renewable assets or batteries in that case, providing this service, then we're displacing these thermal generators even further. And it might be that they turn in line very little, just on very, very low. specific moments of time, which there's no renewable source, and then you really need them for the grid to continue running. It's a big fundamental question across nearly all markets, which is what do you do with the gas units? When they go from running a base load, 24/7 shade, sometimes they do what's called two shifting, so they turn on in the mornings and evenings, and then in the Spanish world, well, maybe the only turn on a few times a year, well, how do you make sure those units are there? We don't have time for this conversation today, but for things like capacity markets or things like strategic reserves are all starting to come out as ways that we could pay for these sites. Pablo, we're very grateful for coming on, talking us all through Spain. We have more episodes on Spain coming up soon, so for listeners and viewers, keep an eye out for those. If you're in Madrid and would like to catch up with Pablo and team, then do reach out, because I know he'd be delighted to talk all things Spanish-powered. Thank you very much.