The warning comes at a time when Spain needs to speed up the deployment of new renewable capacity to meet its ambitious green goals, and after utilities such as Endesa and Naturgy signalled a slowdown in renewable energy development in the face of high interest rates and rising debt costs.

The expansion of renewable energy capacity means that cheap solar and wind power play an increasing role in electricity price-setting systems.

When these sources are at peak capacity, market prices fall significantly, hitting producer profitability. This phenomenon is known as the renewables cannibalisation effect.

"If we don't correct that, investments will slow down or disappear," Jose Maria Gonzalez Moya, director general of the APPA Renovables association, told reporters as he presented a research on the impact of renewable energy in Spain in 2022.

"Next year, in the first or second half, or the following year, it will happen if we don't address this," he said.

A significant expansion of systems to store energy during period of excess generation is key to avoid that, he said.

Spain added a record 8,918 megawatts (MW) of renewable capacity last year, according to the association.

To achieve the goals set in a draft update of the government climate plan, such as renewables generating 81% of the country's electricity by 2030, it would need to add 11,000 MW a year through the end of the decade, Gonzalez Moya said.

(Reporting by Pietro Lombardi, editing by Andrei Khalip)

By Pietro Lombardi