On sunny days, the electricity market price drops significantly in the middle of the day. For example, last week, the market price of electricity hovered around just a few euros per megawatt-hour from midday until about 4 p.m. on several days.

For solar energy producers, this reduces the opportunity to generate revenue from selling electricity to the grid.

Tootsi noted that, ultimately, low midday electricity prices are a positive challenge for the broader market, as they offer access to cheaper electricity. However, from a producer's perspective, higher electricity prices mean shorter investment payback periods, making current market conditions a concern for investors.

"The era of large-scale investments in solar farms — where electricity is simply sold to the grid during production hours — is likely over," Toots explained.

However, he believes that investments combining energy production and consumption remain profitable, with the focus now on maximizing on-site energy use. "In such cases, the return on investment is still very reasonable."

Tootsi emphasized that consuming the generated energy on-site allows for savings on grid fees and excise duties, while residential customers can also avoid paying VAT. "Today, we are prioritizing investments in solar parks that are most profitable for those who can consume as much of their generated energy on-site as possible," he said.

Both electricity and investments cheaper

A profitable approach to developing solar parks has increasingly become the integration of storage solutions, allowing electricity produced during low-cost hours to be used when actual consumption demand arises.

Tootsi cited the example of solar panels installed on residential rooftops, which generate energy during the day when people are at work and electricity prices are low — meaning that selling power to the grid does not yield as much revenue as one might expect. "With storage solutions, we can store the energy generated midday in batteries and use it precisely when energy consumption is needed. Generally, these are the hours when electricity prices are at their highest. Even if our consumption needs are covered, we can sell the stored electricity back to the grid during peak hours through smart management," he explained.

Without subsidies, Tootsi estimates that the payback period for a residential solar investment is around 10 years. "The larger the system, the faster the payback period tends to be," he noted. For large-scale solar farms, the payback period is approximately five years. Currently, the expected lifespan of a solar park is about 25 to 30 years.

However, it is important to note that a significant portion of solar parks is built with subsidies. For instance, in the Kredex grant round that ended in early March, applicants could receive up to 50 percent in funding support. This would reduce the payback period to about five years. "We'll have to see whether similar subsidy programs will be available in the future," Toots said.

The market has now shifted toward building new solar parks with integrated battery storage from the outset. "While this increases the initial investment cost, it shortens the payback period because we can achieve a higher overall return on investment," Tootsi explained.

He also pointed out that equipment prices have decreased, keeping payback periods relatively stable over the years. For example, while high electricity prices in 2022 allowed for greater earnings from solar parks, investment volume was also higher during that time.

"Today, nearly 100 percent of the new solar installations that Enefit sells include battery storage. In 2023, that figure was still at 40 percent. Essentially, all customers who purchase a solar park from us now do so with battery storage," Toots stated.

--

Follow ERR News on Facebook and Twitter and never miss an update!