Because the production of renewable energy does not consume fuel and operating and maintenance costs are low, the marginal operating cost is very low. For this reason, and because of the priority network access given to renewable energy4, the increasing integration of production from renewable sources in the energy mix shifts the other means of production down in the ranking.
Wind and solar energy production can even exclude technologies with a higher marginal production cost from the merit order. This exclusion, which is generally only partial, may be total if the guaranteed renewable production capacity is higher than available production capacity at all flexible facilities. It brings spot prices down for some hours in the year.
Although it does not compensate for this decrease in annual prices, an increase in prices can also be observed at certain times. Given the variability of renewable power generation throughout the day (depending on the wind or the sun), the production-consumption balance must be 4 – Directive 2009/28/EC of 23 April 2009 (art. 16.2.b).
achieved using conventional technologies which are more or less flexible. Frequent changes made to operating methods to accommodate fluctuations in net demand, after unavoidable renewable generation has been taken into account, lead to additional operating costs. The operating costs of power plants with flexible technologies, which start and stop frequently, are spread over shorter periods of operation. To cover these costs, the operators of these plants are therefore forced to offer higher hourly tariffs. Some of these production facilities are therefore excluded from the merit order. In a scenario where there is no energy from renewable sources, for the same hour of demand, they could have offered their product at lower prices than those they are forced to charge in order to remain profitable, during certain times.
2.2. support systems for renewables lead to the appearance of negative prices The negative price phenomenon
Because it modifies the usual merit order for electricity generation installations, the increasing introduction of renewable power generation into the system creates difficulties for facilities
¯ Given the variability of renewable power generation throughout the day (depending on the wind or the sun), the production-consumption balance must be achieved using conventional technologies which are more or less flexible. Row of wind turbines near Ally, Haute-Loire. © ERDF – F. Chevreau
with a low variable cost and rigid operating constraints, like coal-powered plants. This rigidity influences the formation of hourly prices for electricity, with increasingly frequent instances of zero or even negative prices during the year, which result from two types of quotation strategies.
The first quotation strategy is implemented when demand is very low or is lower than expected. Since electricity cannot be stored on a large scale, it may be advantageous for a thermal power producer to provide their product at a negative price for a few hours (that is to say, they pay in order to continue operating) rather than bear the costs incurred by shutting down and restarting the plant. This is for example the case of fuel oil or gas-powered plants that can operate in load following mode, that is to say, in a flexible way according to daily, seasonal or other changes in energy demand. We can hypothesise that episodes of negative prices are most common in situations where a high demand, interspersed with periods of sudden load drops (weekends, nights), combines with high levels of renewable power generation. During the load drops, the thermal plant operators are willing to pay to sell
their products and avoid stopping their plant, in anticipation of the high demand they will need to meet shortly afterwards.
A second quotation strategy may be for a producer to keep some flexible facilities in limited operating mode, as this generation capacity is paid for by the transmission system operator as a means of achieving technical control of the system, at a price fixed in the reserve contracts which is higher than its market price.
The non-storable nature of electricity plays a central role in the appearance of negative prices. Indeed, in the event of a drop in demand, unlike other capital-intensive, less flexible industries (steel, mining), electricity producers cannot rely on storage to sell their products at a better price later.
Negative prices reflect the costs incurred by the shortfall which thermal power producers need to make up for, caused by the lack of storage. It is down to the operators to assign, by default, a market value for electricity storage. Frequent episodes of negative prices could therefore encourage more producers to equip themselves
Germany Spain Belgium France Italy Switzerland
120 100 80 60 40 20 0 -20 €/MWh 01/01 0.00 01/016.00 01/0112.00 01/0118.00 02/010.00 02/016.00 02/0112.00 02/0118.00 03/010.00
¯ Hourly day-ahead prices in Europe on 1 and 2 January 2012. The increasing introduction of renewable power generation into the system creates difficulties for facilities with a low variable cost and rigid operating constraints, like coal-powered plants. This rigidity influences the formation of hourly prices for electricity, with increasingly frequent instances of zero or even negative prices during the year..
Sources: EPEX SPOT, Belpex, IPex, OMEL, Swissix
¯ Level of negative prices in Germany between 2001 and 2012. The German power exchange EEX was the first European stock exchange to allow negative quotations, starting from 1 September 2008.
with storage facilities and use prices as a disincentive to thermal power generation, thus giving priority to renewable energy.
Negative prices observed in France in January 2012
France experienced strictly negative hourly day-ahead prices for the first time in early 2012. There were not always allowed under market rules. The German power exchange EEX was the first European stock exchange to allow negative quotations, starting from 1 September 2008. Before the introduction of this system, the market responded with quotations below marginal costs due to low demand and high wind generation, and reserve capacity was called upon to ensure the security of the power system. Overproduction was thus suspended, without necessarily stopping renewable power generation units.
In France, negative prices were permitted with the expansion of the trilateral coupling (France, Belgium, and Netherlands) to include Germany (becoming the market coupling for the Central West Europe region) in November 2010. The phenomenon occurred ten times in 2012 (see tables above).
The weather at the beginning of the month of January 2012 was particularly mild. Combined with weak economic activity on 1 and 2 January, this led to very low electricity consumption in France over these two days. At the same time, German consumption was relatively low, while there was relatively high production of wind and photovoltaic energy.
The German situation led to Germany exporting power to France during the off-peak hours of the night of 1 and 2 January 2012, while France had been exporting to Germany since 30 December 2011. We also observed a decoupling of day-ahead prices and saturation of German exports to France during the off-peak hours of the night of 2 January 2012.
French power generation facilities therefore had to greatly reduce their production during these hours to accommodate the low level of domestic demand. During the hours of negative prices, in the morning of 2 January 2012 in particular, almost all of the power was generated by free surface hydraulic and nuclear power plants.
Prices strictly
lower than occurrencesNumber of
€0/MWh 169 -€1/MWh 115 -€2/MWh 103 -€5/MWh 95 -€10/MWh 80 -€20/MWh 62 -€50/MWh 46 -€100/MWh 33 -€200/MWh 3 -€500/MWh 1
Source: EPEX SPOT
Date Heure Prix (K/MWh)
01/01/2012 6 h 00 -0.01 7 h 00 -0.08 8 h 00 -0.03 02/01/2012 3 h 00 -5.03 4 h 00 -1.48 25/12/2012 5 h 00 -0.01 7 h 00 -50.06 8 h 00 -0.09 26/12/2012 3 h 00 -5.06 4 h 00 -5.07
˙ France experienced strictly negative hourly day-ahead prices for the first time in early 2012.
In summary, the market fundamentals in Germany (high unavoidable generation and a low level of consumption) and low French consumption at a time of reduced economic activity and mild climatic conditions explain the occurrence of negative prices of 1 and 2 January 2012. The lack of flexibility of production facilities in operation on both sides of the border led to the formation of these negative prices. It should be noted that this market episode took place just over a month before the price spikes occurred in early February 2012. Increased sources of uncertainties in the power systems of the centre-west region, due to the high penetration of unavoidable energy and increasing temperature sensitivity in France, could lead to extreme phenomena occurring more frequently in the future.