Analysis by energy market analysis firm Aurora found that negative price periods in Britain were six times more common in 2024 than in 2022.
The research firm attributes this increase, and the resulting concerns among renewable energy developers, to oversupply due to weak energy demand combined with robust economic incentives, including the UK’s Contracts for Difference (CfD) programme.
Early versions of the CfD scheme financially supported assets in times of negative prices, thus removing the economic incentive to limit production in times of oversupply.
Current CfD contracts do not support assets when prices fall below zero, encouraging a more flexible and responsive approach to generation that reduces oversupply. Similar oversupply conditions have also been observed in other major European markets, including Germany and the Netherlands, with old subsidy contracts there contributing to the increased number of negative price periods in Britain this year; Imports were the cause of most of the negative price developments in 2024.
Energy demand in Britain has fallen by more than 20% since 2010, with improved energy efficiency and reduced production in the commercial and industrial sectors being the main cause.
The demand for energy will increase as a result of the electrification of society. However, Aurora notes that the adoption of electrification in key sectors including transport and heating has been disappointingly slow due to high costs, supply chain issues and infrastructure constraints. The company notes that these pressures pose a significant threat to Britain’s net zero transition and could also discourage investment in renewable energy projects.
Despite these challenges for the industry, the battery energy storage (BESS) sector has been identified as a success story.
The increased frequency of negative price periods has improved margins for UK battery assets, and Aurora notes that the increased use of BESS to increase renewable energy flexibility is “vital” to net zero transition targets.
The increased importance of BESS is highlighted in other predictions about future profits. As reported by Solar energy portal, Research firm Cornwall Insight has predicted that profits from BESS assets will recover by 2026, after what has been called a “long period of underperformance”.
Pranav Menon, research associate at Aurora Energy Research, said: “The increase in negative price periods in the UK energy market this year has caused major concerns among developers and investors about the future profitability of renewable energy investments. Maintaining a favorable investment landscape for renewables requires accelerating the pace of electrification in sectors such as heat and transport, which is critical to achieving Net Zero across the economy, and to focus on improving system flexibility through storage.
This article originally appeared on our sister siteCurrent±.
