Batteries not included

The outlook for European carbon prices will increasingly depend on the rollout of batteries that can store surplus electricity generated by solar power.

Solar was the largest source of electricity in the EU for the first time in June 2025 according to a report by Ember, accounting for 22.5% of the blocs power generation. At least 13 of the 27 EU member countries also set a new monthly solar record in June.

The recent surge has helped the EU power system handle high levels of demand as heatwaves gripped the continent this summer. In previous years, fossil fuel-fired power generators might have played a much more dominate role in meeting mid-summer cooling demand, and in turn resulting in higher EU power generation emissions (see In the shade: Europe's solar power does not get the credit it deserves).

Nevertheless, when the bulk of solar power generation meets or exceeds demand it can drive power prices to very low levels, or even negative. During 2024 day-ahead power prices in Germany went negative for more than 1 in every 20 hours (5.2%). In the year up to 24th August, Germany had already surpassed the previous years cumulative number of hours with negative power prices (457 hours versus 453 during the same period in 2024).

'Saturation' as its known has a knock-on impact on the prospects for future solar power growth. Low or negative power prices lead to lower returns for solar plant operators, reducing the incentive to invest in additional generation capacity. Meanwhile, excessive solar power generation can also contribute to grid instability issues, further undermining the incentive to expand capacity.

Persistent low or negative power prices are a clear signal that there is insufficient energy storage available. However, while EU renewables output has boomed in recent years, investments in battery energy storage system (BESS) capacity have struggled to keep up, and are far behind what is thought necessary to avoid saturation.