Spain to outpace Italy's solar growth with PV boom to squeeze gas this summer

Spanish solar PV capacity is forecast to reach 35 GW by the end of this year, overtaking Italy, still Europe's second biggest market in terms of installed capacity, according to analysts at S&P Global Commodity Insights.

Already this summer, solar output is to lead Spain's power mix with some 9.5 GW capacity to be grid-connected this year compared to 4.3 GW in Italy, where gas plants still dominate the mix keeping power prices at a premium.

"We expect over 50 GW of solar in Spain by end-2026, almost 15% higher than Italy," said Alexandre Mace, power and renewables analyst at Commodity Insights.

"Vast presence of local and experienced developers, availability of public and private financing and enhanced capacity targets towards 2030 make the Spanish solar market quite attractive, although permitting and price cannibalization pose some risks for new projects," Mace said.

Spanish solar power plants are forecast to generate 17.5 TWh between June and August compared to 12.5 TWh in Italy, up 20% and 13% respectively from last summer.

Those gains alongside improved hydro on the Iberian peninsula are set to squeeze gas for power demand. Gas plants already got marginalized in the spring amid record-low power prices barely averaging Eur20/MWh since Easter.

In Italy, gas remains the price-setting technology, keeping power prices around Eur80/MWh this spring, exchange data show.

Spanish solar capture prices are set to rebound in May after averaging only Eur8.15/MWh in April, the lowest on record capturing just 56% of wholesale values.

That compares to Eur76.48/MWh for Italian solar, capturing 88% of average day-ahead prices, according to Platts assessments for Commodity Insights.

Europe's biggest solar plants

While two-thirds of Italian solar panels are still on roof-tops, Spain has built some of Europe's biggest ground-mounted solar projects over recent years, most without subsidies.

Only 11% of new Italian capacity in 2023 was projects bigger than 5 MW, according to a report by renewables agency GSE, while a third was installations between 0.2 MW and 1 MW.

In a regional breakdown, 13.4% of all the PV installed in the country is concentrated in Lombardy, followed by Emilia Romagna and Apulia, where only a third of solar capacity is on roof-tops.

By contrast, most of Spanish solar PV capacity is ground mounted with Extremadura and Andalucia hosting almost 40% of it, according to solar association UNEF.

A new ban on solar on some agricultural land in Italy might limit future growth, with the government's draft agriculture bill currently under debate by the Senate in Rome.

Spain's PV growth is set to accelerate amid a mid-2025 (extendable to 2028) deadline by grid operator REE for utility scale projects to ensure their grid access, which may impact 59 GW projects in the development stage.

Commodity Insights analysts forecast some 32 GW of utility-scale solar projects will be built in Spain over the next five years (2024-2028) with growth set to peak in 2025.

"The massive pipeline of PV projects that vie for completion in the coming years has heated the competition to find offtakers. Suppressed power prices don't help. We can expect to see various creative approaches to get projects over the finishing line," said Josefin Berg, senior clean energy analyst at Commodity Insights.

Over the past five years, some 18 GW of utility-scale projects were built including Europe's first subsidy-free solar park -- BayWa's 175-MW Don Rodrigo-1, operating since 2019 -- and Iberdrola's 553-MW Francisco Pizarro, which was Europe's biggest solar project when it started in 2022.

Over half of Spain's solar PV project pipeline is being developed by 15 companies, led by Iberdrola, which alone completed 1.5 GW in 2023.

The Platts-Pexapark index for a standard 10-year solar PPA in Spain has fallen by around 25% over the past year, but has started to stabilize, last pegged May 22 at Eur33.34/MWh.

June power settled May 22 at Eur55.10/MWh in Spain and Eur101.40/MWh in Italy, while Q3 settled at Eur80.89/MWh and Eur110.35/MWh, exchange data show.