Merchant solar and wind projects could see their returns “significantly” impacted as power prices across Europe fall.

Aurora Energy Research modelled four scenarios for economic recovery following the COVID-19 pandemic across seven EU countries, including the UK, Italy, France, Germany, Spain, the Netherlands and Poland.

The scenarios – mild recession, severe recession and two depression scenarios – were investigated to get a picture of the economic spectrum that might arise due to COVID-19.

Aurora found that in a worst-case scenario power prices – which have fallen between 30% and 40% on average – may not fully recover until 2025.

In a mild COVID-19 scenario, power prices would recover by 2022, according to the research firm.

Renewable energy projects such as solar and wind may be the hardest hit by the fall in power prices, which in Great Britain fell by 21% the week commencing 23 March, the day lockdown began.

Whilst subsidised projects will see revenues partly or fully protected by the government despite the fall in market prices, the drop in expected revenues will impact existing renewable schemes and possibly delay new schemes, Aurora said.

Renewable projects that are being developed on a merchant basis, conversely, are likely to see more severe and longer lasting impacts, including large portions of GB’s pipeline. The firm estimated that around 34GW of renewable developments could be at risk across the seven countries featured in the report.

These projects could see their revenues fall by 20-50% depending on the severity of COVID-19.

Felix Chow-Kambitsch, head of commissioned projects - Western Europe at Aurora Energy Research, said: “The effect of Coronavirus has rippled through European energy markets – significantly reducing demand and prices of gas and electricity.

“European power utilities are likely to experience a significant fall in revenues in 2020, with merchant-exposed renewables schemes significantly affected.”

The fall in demand could also create challenges for power system operators across Europe in balancing the grid as the proportion of renewables will be higher than usual, Aurora said. Already in the UK, solar has broken the peak generation record, generating 9.68GW on Monday 20 April.

National Grid ESO has, however, stressed that whilst the current situation is presenting new challenges, it stands ready to meet them.