Abrupt solar subsidy changes can destabilise power markets

Zawya

12-05-2025

MUSCAT: France's energy regulator has urged governments to avoid abrupt changes to renewable energy support schemes, warning that even the announcement of reform plans can undermine investor trust and create long-term uncertainty in the power sector.
Speaking at the 22nd Annual Conference of the Energy Regulators Regional Association (ERRA) held in Muscat last week, Ivan Faucheux, Commissioner at the French Energy Regulatory Commission, said that altering support contracts without careful system-level consideration can destabilise power markets.
'When you say, 'I will change the contract,' that alone sends a negative signal,' Faucheux said during a session on solar capture rates and support mechanisms. 'There is a risk of mistrust towards public support — which is intended to be long-term and stable.'
He noted that France's own energy market had revealed inefficiencies in previous subsidy schemes. While some of the corrections benefited producers, Faucheux stressed that greater emphasis should now be placed on encouraging renewables to respond to real-time grid demands, especially through participation in balancing markets and ancillary services.
'The key is to expose renewable energy facilities to system constraints,' he explained. 'If a producer can adapt and shift surplus electricity to the balancing market — instead of relying only on the day-ahead market — that can generate added value for the system.'
However, he warned of the consequences of long-term negative electricity prices, which are becoming more common in countries with high renewable penetration. 'Developers are very aware that prolonged periods of negative pricing reduce the capacity to capture market value,' he said. 'This makes it harder to finance new projects.'
Faucheux also pointed to a broader technical concern: increasing system instability due to limited storage and the need for real-time balancing. 'We've used much of our available storage. The system now requires continuous adjustments between production and demand, which creates a highly complex and volatile market,' he said.
He explained that abnormal pricing is not necessarily a market flaw. 'Markets reflect economic value. When we see very low or negative prices, it's not a failure of the market's design — it's a reflection of how actors behave and whether incentives are aligned,' he said.
Rather than launching entirely new frameworks, Faucheux advocated for modifying earlier contracts that distort market dynamics. 'Often, the same developers who built projects five years ago are now planning new ones,' he said. 'Fixing past contracts — even with limited gains — helps maintain investor confidence.'
Faucheux noted that the policy approach should be tailored to each country's specific electricity system. 'There's no single solution,' he said. 'Sweden, with its hydropower-based system, faces different challenges from France, which relies on nuclear and gas. Solar and wind also behave differently — wind has inertia, while solar is more variable.'
He concluded with a call for practical dialogue and contextual understanding: 'It's not about copying someone else's policy. It's about understanding your own system and deciding whether a solution that worked elsewhere fits your problem. We may face different challenges, but the technical foundation of our systems is the same.'
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