Power prices start in the wholesale electricity market, where daily trades set prices for the next 24 hours. In this market, energy producers, including wind and solar farms as well as traditional sources like nuclear plants, offer electricity at specific prices. On the other side, buyers like energy retailers and large industries state how much they’re willing to pay.

This process works like an auction. Prices are set based on the balance between supply and demand, with results typically announced by early afternoon. Producers whose prices are at or below the market price sell their electricity, while buyers who bid at or above the market price get their energy.

The “merit order” system ranks energy sources by cost, prioritizing cheaper, greener options like wind and solar over more expensive sources like gas and coal. This system ensures that the most cost-effective and environmentally friendly energy is used first, keeping prices lower and supporting cleaner energy.

Europe is increasingly seeing negative energy prices, a clear indicator of a significant imbalance between electricity supply and demand, often triggered when both solar and wind generation are particularly strong. This trend is a direct result of Europe’s heavy investments in green infrastructure, including a record number of solar panel installations last year, aimed at reducing reliance on Russian natural gas.

While Germany has garnered significant attention for its frequent negative electricity prices, this trend is far from being isolated. Multiple countries and their respective electricity exchanges have embraced negative pricing mechanisms, demonstrating a global trend. In Europe, Austria, Belgium, the Netherlands, Great Britain, France, and Switzerland have joined Germany and others in experiencing negative prices on EPEX Spot’s day-ahead and intraday markets. This integrated market structure allows for seamless price movements across borders, reflecting the interconnectedness of energy systems.

SEB Research reported in May that Germany has added more solar capacity than its consumers currently demand. In 2023, the country’s solar capacity reached 81.7 gigawatts, surpassing a maximum demand load of just 52.2 gigawatts. This summer, prices also dipped into negative territory in France, forcing nuclear plants to temporarily shut down in June—a situation that has also been observed in Spain and Scandinavia.

One of the major issues contributing to these inefficiencies is the lack of sufficient battery technology to store excess electricity. As a result, consumers often don’t benefit from lower day-ahead prices, since they typically use more energy during non-solar hours. SEB’s research warns that prolonged suppressed pricing could eventually discourage further investment in solar infrastructure. Instead, the report suggests that solar energy would benefit more if additional funding were directed toward improving battery storage and grid capacity.

Despite these challenges, Europe’s commitment to solar generation remains strong. According to Reuters, Eastern European countries are now leading solar expansion efforts. In the first seven months of this year, utility-operated solar output increased by 55% year-over-year in countries like Austria, Bulgaria, Hungary, Romania, and Poland.