LITTLETON, Colorado, May 30 (Reuters) - After a breakneck expansion that lifted solar generation by over 200% since 2019, Spain's solar installation pace looks set to slow in 2024 as historically weak power prices mixed with high materials and labour costs eat into developers' returns.

The chief executive of Spain's solar photovoltaic association UNEF said this week that installed capacity during the first quarter fell by roughly 26% from the same period in 2023, across both residential and industrial segments.

Rapid renewable energy supply growth, improvements to energy efficiencies and contractions to energy use by industry have helped drag Spain's wholesale power prices down roughly 90% from their peak in March 2022 to multi-year lows last month - just as solar developers have added record generation capacity.

Power prices have staged a recovery this month on cuts to generation from fossil fuels and the prospect of reduced future solar installations, but may still come under fresh pressure this summer when the country's already-installed solar facilities enter their peak output period.

PRICE CUTS

Since hitting an all-time high of around 293 euros per megawatt hour (MWh) in March of 2022, average monthly wholesale power prices in Spain dropped by over 90% to hit a multi-year low of around 14 euros/MWh last month, according to LSEG.

This steep collapse in wholesale power prices made it increasingly challenging for energy developers to chart a path to future profit, especially given the large upfront costs involved in building new energy projects and rising interest rates which lifted borrowing costs.

Slowing orders from residential consumers - due to lapsing government subsidies and higher loan and financing costs - then added to solar developer woes, and helped trigger the slowdown in installations noted by UNEF.

But even though Spain's power prices have rebounded to over 30 euros/MWh this month, a fresh push lower can't be ruled out over the coming summer.

PEAK PRODUCTION

Spain's solar assets produce more than double the amount of power during June, July and August as is generated during winter months, data from energy think tank Ember shows.

In 2023, Spain's utility-scale solar assets produced an average of 4.85 terawatt hours (TWh) of electricity in June, July and August, compared to an average of less than 2 TWh per month in November and December that year.

The sharp climb in solar output in turn more than doubled solar's share of the total generation mix from around 10% in winter to around 25% in July and August.

And despite the slowdown in the pace of new solar installations, the total footprint of Spain's solar production base hit a new high in 2024, and so will generate even greater volumes of electricity this coming summer.

Indeed, total solar production from photovoltaic assets operated by utilities through May 28 this year is roughly 13% greater than during the same period in 2023, according to LSEG.

And so far in the month of May, solar output is 26.3% up from the same month last year.

This suggests that Spain's solar power output over the coming months will surge to fresh records during peak periods, potentially exceeding system demand requirements during spells of weak consumption.

This heavy load of solar power in turn has the potential to crowd out alternate power sources and drive Spain's power prices lower again, especially if domestic electricity demand remains relatively flat.

Some of Spain's surplus power can be exported to neighbouring nations such as France and Portugal, which were both buyers of surplus Spanish power earlier this year, according to energycharts.info.

However, thanks to a recovery in France's nuclear reactor output and expected output increases from Portugal's own solar assets, Spain may struggle to find ready buyers for all of its surplus power this summer.

The unsold surplus may in turn weigh on local and regional power prices, placing potentially fresh strain on the country's beleaguered solar asset operators.

(Reporting by Gavin Maguire; Editing by Stephen Coates)