Negative power prices have swept across Europe for the first nine months of 2020, with excess power in the market resulting in consumers being paid rather than charged to use electricity, according to a report conducted by European energy analysis firm EnAppSys.
The study shows that until September 2020, European countries on average saw negative day ahead prices almost 1% of the time, with an average of 0.8%. The study claims these numbers were typically 3-4 times higher than those seen between 2015 and 2018 and more than twice those seen in 2019.
During these periods the market could use as much energy as it generated. With supply required to match, the day ahead prices increasingly fell below zero, which means generators were charged to the privilege of producing power, and consumers were technically paid for using it.
Alena Nispel, a business analyst at EnAppSys, said: “In such an event, generators will stop producing power if production costs get too high, making it unprofitable in the long run – as a result, the energy supply is reduced. Consumers are being paid in order to increase the energy demand. However, the price we pay as consumers at home is not the same as the price the market pays. Instead, a fixed value that smooths out the extreme prices is more typically used.
“If the frequency of these events increases, it may become the norm to move away from the fixed value in the future and instead use more power when the market is oversupplied and less when power is at a premium.
“Despite this, it is worth bearing in mind that 2020 has been a unique year. The combination of increasing interconnection between the participating markets, a higher share of renewable output and lower demand due to COVID-19 in the first half of 2020 made the market much more volatile.”
Markets that rely on more renewable energy sources such as wind power, like Ireland, Denmark and Germany, have been particularly affected by negative pricing as peak production levels exceeded demand for post-lockdown power consumption.
The amount of overall energy demand covered by wind generation reached 49% in Denmark, 36% in Ireland and 27% in Germany. These were by far the three largest examples in Europe, with Ireland, in particular, seeing negative prices 4.2% of the time - ranking significantly above the European average.
Germany experienced negative prices of -€83.94/MWh for eight hours on April 21. In this timeframe, the country not only faced wind generation well above the national average but also high solar generation. Within this tiny eight-hour timeframe, wind and solar energy counted for 88% of Germany's demand.
The report also claims that Belgium saw particularly low prices as the combination of nuclear and solar generation oversupplied the market at times during periods of low demand, with prices reportedly dropping as low as -€115.31 Euro/MWh on April 13.
Ms Nispel said: “It is here that we see one of the key challenges of renewables: their intermittency. Where the average output of a solar panel over a year might be 8% or the average output of a wind farm is around 30%, the peak output values will be very close to 100% of the potential output.
“The levels of demand for electricity are similarly intermittent. In the past it was possible to pair intermittent demand for electricity against a non-intermittent supply of generation (coal/ gas power stations) but pairing an intermittent supply (wind and solar) against an intermittent demand creates challenges.
“These challenges have so far been made more pronounced in 2020 as renewable generation levels continued to climb and demand for electricity declined across Europe as lifestyles changed in response to the COVID pandemic.
She added: “Electricity storage can act to reduce these impacts – at least as far as it is economically sensible to do so – and new technologies that provide services without producing active power can help to reduce the generation required from conventional power sources. An example can be found in Britain as synchronous condensers are being introduced.
“In Britain, these synchronous condensers provide inertia to the market. In essence, inertia is a natural resistance to any changes in the electrical frequency of the market. This resistance means that frequency drops at a slower rate when a loss of supply occurs, as it is necessary to keep frequency within a certain range.
“A market where frequency drops below this range very quickly is much harder to manage. In 2020 there were many occurrences of negative pricing when large power stations were still generating huge volumes of power to provide, not power, but “services” such as inertia.
She concluded: “Replacing these power stations with an alternative such as a synchronous condenser – a motor that effectively still spins and provides inertia but without being attached to a generator – means that these plants can be switched off and more renewables can be accommodated in the market. This in turn acts to reduce instances of negative pricing.”
The Report also lists countries that have not seen any negative pricing since 2015. These countries are Bulgaria, Romania, Greece, Italy, Poland, Portugal and Spain.
Countries where renewables make up significantly less of the production, such as Poland, tend to operate in a less volatile market, where price changing is significantly less steep. A different example is Portugal due to its only connection being Spain. The market rules of both economies prevent prices dropping into the negative.
In future, capacity at renewable projects is set to grow and the reduction of demand in 2020 gives a good insight into the impact of what increased renewable capacity could look like.
"Storage can reduce these impacts, as can increased market flexibility, but activity so far in 2020 does highlight some of the areas in which markets may benefit from improvements going forwards, albeit with many of those improvements starting to be introduced," the report concludes.
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