Due to the overproduction of renewable energy sources, electricity prices become negative
With the increase in the number of solar panels and wind turbines, an unusual phenomenon is occurring more and more often: wholesale electricity prices are becoming negative.
While this could improve the mood of consumers whose energy bills have risen sharply in recent years, it could undermine the further development of renewable energy sources, a key element in the fight against global warming.
The increasingly common phenomenon is “extremely problematic” for the wind and solar energy sectors, said Mattias Vandenbulcke, strategy director at renewable energy industry group France Renouvelables.
“It allows some to use harmful, even dangerous rhetoric that ‘renewables are useless,’” Vandenbulcke said.
In South Australia, wholesale electricity prices have been negative about 20 percent of the time since last year, the International Energy Agency said.
The share of negatively priced hours in Southern California was above 20 percent in the first half of the year, more than three times the same period in 2023, the IEA said.
In the first six months of the year, France saw negative prices about five percent of the time, surpassing last year’s record, electricity grid operator RTE said.
In Switzerland, the price fell to -400 euros (-$436) per megawatt hour on July 14. The lowest prices are usually recorded around noon in summer, when solar energy production is at its peak.
– ‘A warning signal’ –
The trend has been accelerating over the past three years as demand in Europe has unexpectedly fallen since the Covid pandemic and the war in Ukraine.
Prices turn negative in the spot wholesale electricity market when production is strong while demand is weak.
About a fifth of the total is traded on this market, where electricity is purchased for the next day.
Negative prices help lower consumers’ bills, said Rebecca Aron, head of electricity markets at French renewable energy company Valorem, but the impact comes late and is difficult to distinguish among the other factors driving prices lower.
Large, industrial consumers who can shift production to times when prices are negative and buy in wholesale markets can reap the biggest rewards.
Negative prices are “a warning sign that there is far too much generation on the grid,” said energy analyst Nicolas Goldberg of Columbus Consulting.
Electricity networks must be constantly kept in balance. Too much can cause the frequency of electricity to exceed the standards for some equipment. Too little could cause some or all customers to lose power.
There are currently few options to store excess electricity production, so producers must reduce production.
Many sustainable producers stop production when prices become negative. At a solar park it takes one minute to stop production, at a wind turbine it takes two to three minutes.
But not all of them stop production.
– Tripling of renewable energy sources –
“Renewable energy can be controlled, but depending on the production contracts there is not necessarily an incentive to stop,” said Mathieu Pierzo of French grid operator RTE, which is responsible for balancing electricity loads.
Some producers are paid a fixed price under their contract or are compensated by the state if prices fall below a certain level.
Fossil fuels and nuclear power plants can adjust their production to some extent, but stopping and restarting production is expensive.
In the future, solar and wind energy will also have to “participate more in balancing the electricity system,” Pierzo said.
Solar and wind energy production is expected to rise further after countries agreed at last year’s COP28 climate conference to triple renewable energy capacity by 2030 as part of efforts to limit warming to 1.5 degrees Celsius compared to pre-industrial levels.
“The increasing frequency of negative prices sends an urgent signal that greater flexibility of supply and demand is needed,” the Paris-based IEA warned last week.
“The right regulatory frameworks and market designs will be important to enable an adoption of flexibility solutions such as demand response and storage,” the report said.
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