Permitted on French markets since 2010, negative prices remained extremely rare, around ten hours a year since 2012. That is below Germany, around 56 hours in 2013, and well below Spain, around 479 hours, or some US markets, more than 10 % of the time on the ERCOT West intraday market.
Given the structure of the French fleet, that count was set to stay limited before 2020. But without regulatory change on renewable integration, growth in wind and solar capacity would push it to as much as 1,100 hours a year, around 12 % of the time, by 2030.
An apparent anomaly that is entirely rational
Negative prices look like an economic aberration. The explanation is straightforward.
Thermal plants sometimes have an interest in maintaining output even when the system does not need it and sends no favourable price signal, typically during high renewable output. The reason is the cost of shutdown and restart cycles. A negative price therefore reflects those generators’ preference for paying consumers to take their output rather than bearing even more punitive stop-start costs.
An inefficiency consumers will pay for
In the short term the phenomenon looks advantageous for consumers since it lowers wholesale prices. In Germany, average day-ahead prices fell 32 % between 2010 and 2013, partly because of these episodes.
It in fact masks an economic inefficiency that will be paid in the long run by all participants, consumers included, notably through future capacity payments to thermal plants. A situation in which generators fail to cover full costs cannot last, since it destroys any incentive to invest.
The inefficiency is easy to identify. For society as a whole, most renewable plants would be more efficient than thermal plants at modulating output downwards, since their marginal stop-start costs are generally lower, blade pitching on a wind turbine for instance. Yet the regulatory framework, granting renewables priority dispatch and out-of-market remuneration, gives them no incentive to modulate.
Three consequences
Renewables must take part in downward modulation. Ending their payment during negative price periods would give must-run renewables an incentive to modulate and should make the phenomenon disappear. That was the arrangement recommended by the European Commission in its new guidelines.
Support mechanisms will need adapting accordingly. The new integration rule could cut output, and therefore revenue, by up to 20 % by 2030, if support is not adjusted for lost output or if curtailment is not compensated. Without those adaptations, investor risk would rise, working against Europe’s ambitious renewable capacity targets.
New solutions must use the curtailed output. To maximise the value of renewables, several routes will need to develop: intelligent demand stimulation, meaning not only the ability to reduce consumption briefly but also to increase it in order to absorb surpluses, storage solutions, power-to-gas, and more flexible thermal capacity.
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The downloadable PDF of this study is available in French only.
