Spain and China share a common problem: they produce too much solar power.
The two countries are committed to a green future and have made dizzying progress. Over the past two years, Chinese renewables exceeded ten trillion kWh of electricity for the first time and are expected to account for a third of growth in global demand by 2040, driven by its ever-expanding electric car fleet, industrial transformation, and artificial intelligence data centers.
Although my home country of Spain is much smaller than China, it too is experiencing a renewable boom. More than $80 billion in capital has been invested over the last 15 years in renewables, with solar costs dropping from $0.36/kWh in 2010 to just $0.04/kWh. Green energy accounts for two-thirds of the total national power grid.
The price of solar panels has fallen by roughly 90% over the last decade. Solar is not dependent on moving parts that wear out, and production can be managed with software, without the need to maintain turbines or furnaces.
The scale of this renewable surge generates a new problem: oversupply. When you have a cheap energy source, logic dictates that you generate as much of it as you can. Oversupply offers more benefits than problems. About 9% of China’s potential wind and solar energy was lost during the first half of the year. Had China been able to distribute this energy, it could have generated an additional 360 TWh in solar and wind energy.
China’s electricity is centrally managed and has opaque prices. Long-term coal contracts still crowd out cheaper and cleaner renewables. The country has set itself the goal of creating a unified national electricity market by 2030, which will eliminate many of the inefficiencies resulting from fossil fuel consumption. Electricity must be moved between regions and different time zones. China will need to invest $3.9 trillion in its grid by 2049 and increase its number of batteries and hydro storage.
In Spain, so much solar power floods the grid on sunny spring and summer days that wholesale market prices drop below €1/MWh. Our national strategy focuses on smoothing out these midday spikes. We are incentivizing the build-out of utility-scale battery storage and pumped-hydro installations to soak up the midday generation peaks and shift that energy into the lucrative evening hours.
Several important lessons can be drawn from the solar surplus. When the combination of renewables and batteries becomes the cheapest generation option, it makes no sense to continue with gas turbines or nuclear energy. Countries that do not understand this will end up paying dearly.
Renewable abundance will contribute to achieving an advantageous position in the AI race. Where once homes and industries were the main drivers of demand, we now have data centers: China’s live IT capacity is expected to more than double in five years.
Instead of investing just enough to cover demand and then passing on expensive infrastructure overheads to consumers, surplus can be produced at no additional cost.
We are now at the point where we should be overbuilding capacity at solar energy farms, something we would never do in the case of a conventional power plant.
This is a change that will see a resizing of all electricity generation infrastructure over the coming decade. Eliminating fossil fuel power plants and replacing them with oversized solar plants is not only green — it is cheap.
Moving from an economy of scarcity to one of abundance can be difficult to visualize, understand or accept. But it is inevitable. If you still believe in last century’s myths about renewables, it’s time to take a look around. It could truly be a lightbulb moment.
Enrique Dans is a Senior Fellow with the Tech Policy Program at the Center for European Policy Analysis (CEPA). He is a professor at the IE Business School in Madrid and writes for Spanish newspapers and magazines on technology adoption, innovation, and entrepreneurship.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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