Periods of excess electricity production are on the rise thanks to the growth of renewable energy, forcing commercial power generators to sell for negative prices. Unfortunately, this doesn't mean lower household bills.
The huge growth in renewable energy across Europe means electricity plants are generating more power than is needed, forcing them to pay energy firms to discharge it – effectively, selling at a negative price. On the face of it, this might seem like a good thing for cash-strapped households, but negative prices don’t necessarily bring down people’s electricity bills, and can also bring a host of downsides, including disrupting the business case for building more renewables.
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The price of power is largely determined by the “day-ahead” market, a wholesale auction where electricity generators bid to supply power for the next 24 hours to energy firms and industrial users. If generators expect to have excess output, they submit low or negative bids, as fully turning off facilities like wind turbines would be less economical. This in turn causes prices to go negative, which means generators must pay to feed their power into the grid.
Such negative pricing periods usually only occur when a surge in renewable electricity production, for example during particularly sunny or windy periods, coincides with low demand on the grid, such as during weekends or summer holidays. But swift growth in renewable power generation means they are increasingly common even during the working week, and many countries are forecasting a record year for negative pricing.
“For the last 25 years, they have been occasional and rare and on special occasions. But now they are massive and they happen during the day, when everyone is working, when everyone is consuming electricity,” says Kathrin Goldammer at the Reiner Lemoine Institute in Germany.
For example, in Great Britain – which has a separate electricity market to Northern Ireland, which makes up the rest of the UK – the first six months of 2024 have seen 3.5 times more negative pricing periods than the same period in 2023, says Euan Killengray at KrakenFlex, a subsidiary of UK energy supplier Octopus Energy.
This change appears to be driven by the growing proportion of renewable electricity on the British grid. In 2021, negative prices occurred for roughly 1 hour a fortnight, on average. So far this year, negative prices are averaging at close to 1 hour a day, according to analysis shared by Pierre Pinson at Imperial College London.
“In a power system which has a higher and higher degree of renewable energy… then basically everyone wants to get rid of their electricity at very low cost on the wholesale market,” says Goldammer.
Subsidies paid to renewable electricity generators, which guarantee a price regardless of the market rate, have also helped negative prices to become more commonplace, as they mean firms are willing to accept a below-zero rate.
This isn’t just an issue for the British grid. The Netherlands recorded 316 hours of negative prices last year, according to EnAppSys data, while in March, Spain recorded its first ever instance of negative prices. Germany is also on course to experience a record year for negative pricing this year, says Claus Urbanke at renewable generator Statkraft. “The number of negative prices is rising currently, quite strongly,” he says.
So what is wrong with getting paid to use power? For one thing, it can impact the business case for building new renewable capacity, says Urbanke. Given global clean power generation must triple by 2030 to meet climate goals, anything that weakens the investment case is risky.
Meanwhile, during periods of negative pricing, the cost of balancing the grid goes up. Grid operators must work harder to move huge volumes of renewable power around and ensure back-up power is on hand to provide stability to the grid.
Consumers don’t benefit either. Very few households will be on energy tariffs that track wholesale markets, and even then consumer bills face additional standing charges and levies, making it impossible to get paid for running your washing machine, say.
But there are upsides. Negative prices also send a signal to the market to invest in more flexible technologies, such as batteries, which can store power when it is cheap. “Negative prices are not only a problem, they are also an opportunity,” says Goldammer. Wind farms and solar plants are increasingly likely to house batteries or hydrogen production facilities on site, for example, so they can store energy rather than feed it into the grid when electricity prices are below zero.
Likewise, as households transition to electric vehicles and heat pumps, there will be more reason to switch to tariffs that automatically draw down power at the cheapest point of the day, helping more of the excess to be used. Governments are also acting to tighten rules around subsidy payments, so generators have less of an incentive to bid negative prices into the wholesale market.
Eventually, greater flexibility and regulatory reform will help supplies better match demand in the power markets, says Pinson, largely ending below-zero rates. “It is going to be a lot of small and medium solutions that we combine here and there, and eventually we get this extra flexibility that has a huge impact in the market,” he says.
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