The causes and effects of negative power prices (2024)

Renewables have made negative prices increasingly common

The rising share of renewable power has made power prices much more volatile in Germany and negative prices have become a fairly common phenomenon.

In 2017, electricity reached its lowest average price on 29 October, when a combination of strong wind power output and low demand pushed the daily average down to minus 52 euros per megawatt-hour. This contrasts with a peak of 102 euros on 24 January, when renewable production was very low and demand strong, according to figures by energy think tank Agora Energiewende*.

The number of hours with negative power prices in Germany increased by around 50 percent to 146 hours in 2017, which translates into 1.6 percent of total time, while the average negative power price was minus 27 euros per MWh. The lowest price was minus 83 euros, which was less extreme than in 2016 (minus 130 euros), indicating that power market players have learned to deal with these situations. But the average negative price was lower (minus 26.5 euros per megawatt-hour) compared to 2016 (minus 17.8 euro per megawatt-hour).

How does power trading work and how do negative prices occur?

Prices in the power market are determined by supply and demand. On the German day-ahead power exchange EPEX Spot SE, power producers bid certain amounts of power for a certain price, while buyers lodge into the order book how much power they are willing to buy at a given price. This is done by 12 o’clock every day for all hours of the following day. When putting the bids for selling and buying in order, two curves can be drawn. The point where their trajectories meet, marks the market clearing price - the price that is paid to all successful bids (see Figure 1 and a real life auction curve here).

Negative power prices on the electricity exchange occur when a high and inflexible power generation appears simultaneously with low electricity demand. This is often the case on public holidays such as Christmas or Pentecost. Particularly in hours of (predictable) high renewable power supply (lots of wind and sun), power producers offer their electricity for negative prices on the exchange. This is often done by marketers of renewable power but also by conventional power stations like nuclear and lignite plants. In this event, the market clearing price can be set below zero (see Figure 2).

Why do power supply and demand have to be matched on the exchange?

Power can currently not be stored at a large scale in the German electricity system. To keep the power grid running stable at a frequency of 50 Hertz, the amount of electricity fed into the system and power demand have to be kept equal.

This balance has to be achieved by closely matching supply and demand – something that the power market has to deliver apart from its other purpose of shaping the trading price for electricity.

Reasons for negative power prices

Negative power prices were introduced to the German intraday-market in 2007 and to the German-Austrian day-ahead market in 2008.

Electricity exchange EEX points out that negative prices are not generally a bad thing. They provide incentives to utilities to make their power stations more responsive to changing conditions on the power market, and offer companies new business opportunities by adapting demand. At times of high production, producers should be stimulated to take capacity offline, while large-scale consumers can ramp up demand when prices are low.

Because negative power prices are a sign of very high supply at the market, additional “cheap” renewable power is often blamed for causing the electricity price to drop below zero. But inflexible conventional power stations are equally responsible.

Renewables have priority in the power grid and therefore always come first in the merit order, making conventional electricity dispensable at times. Their share in electricity consumption has grown to 36.1 percent in 2017.

However, times featuring the right conditions so renewables can nearly cover Germany's entire electricity demand are so far extremely rare. On New Year's day 2018, renewables hit a symbolic milestone, by accounting for about 100 percent of power consumption for the first time at around 6 am (See Factsheet Germany’s renewable generation peaks remain shrouded in data fog to find out more about the difficulty of proclaiming renewable records). But even at times of very strong renewable production, conventional power plants, i.e. hard-coal, lignite and nuclear power stations, continue to feed power into the grid.

There are several reasons why conventional power station operators, which are either losing money or at least losing profit during times of negative prices, keep their plants running (See study by Energy Brainpool, page 4-5 and the 2016 results from Consentec). They can be technical, for example the power plant can be too inflexible to change its output, or the ramping or costs for shutting down and starting up can be too expensive. Another reason for keeping the plant running can be the obligation to provide contracted balancing power to keep the grid stable or provide re-dispatch power. Alternatively, it may be that a certain production has to be kept up to provide heat for a town household heating network. Those plant operators which have already sold their power at the longer term futures market face no extra costs when they let their units run – they are merely losing the profit that they could make by buying cheap power to supply their customers instead of producing their own.

Effects of negative power prices on consumer power prices

Renewable power producers receive guaranteed feed-in payments for every kilowatt-hour they produce. As their power is sold at the electricity market (either by transmission grid operators or directly by renewable marketers) part of this feed-in remuneration is covered from the market price for power. But whenever the wholesale price is lower than the feed-in tariff (which it is most of the time), the difference is made up from the renewable energy surcharge (EEG surcharge), a levy that almost all consumers pay with their power bills. When the wholesale electricity price is high, the EEG surcharge is low. But when the market prices drop below zero, the difference payable via the levy increases and therefore puts a burden on consumers.

The EEG-surcharge is fixed every year in advance, based on assumptions about future electricity generation and market prices (See factsheet Green Energy Account). The Renewable Energy Act (EEG) stipulates that large renewable installations do not receive feed-in tariffs anymore when the price on the exchange is negative for six consecutive hours.

Means to prevent the occurrence of negative power prices

“More flexibility” is the key to preventing more hours of negative power prices in the future, a study by Fraunhofer ISI and other institutes for the Ministry for Economic Affairs and Energy (BMWi) states. The supply side (e.g. more flexible conventional power plant ramping; renewable installations providing balancing power; non-fluctuating renewables like biogas and hydro-power) and the demand side (e.g. large industrial power consumers; power to heat options; and increasingly storage) could both become faster at adjusting to high input from renewable electricity generation. More cross-border grid connections with neighbouring countries could offer additional relief.

Exporting power at negative prices

Despite press reports suggesting Germany is losing out by paying neighbouring countries to use its electricity, actual volumes of power exported at negative prices are comparatively small. According to Agora Energiewende, the value of all the power exported at negative prices amounted to around minus 40 million euros in 2017.

This compares to total power exports worth 2.7 billion euros in 2016 and 2.3 billion euros in the period from January to October 2017, according to official statistics. Given that Germany is a net exporter because import volumes are much lower, the national power trading surplus was around 1.7 billion euros in 2016 and 1.4 billion euros from January to October 2017. Germany sold electricity to neighbouring countries at an average price of around 34.5 euros per megawatt-hour in 2016, while the average price for imported power was around 36.5 euros per megawatt-hour.

* Like the Clean Energy Wire, Agora Energiewende is a project funded by Stiftung Mercator and the European Climate Foundation.

The causes and effects of negative power prices (2024)


What causes negative energy prices? ›

Electricity. When demand for electricity is low but production is high, electricity prices can go negative. This can happen if demand is unexpectedly low, for instance due to warm weather, and if production is unexpectedly high, for instance due to unusually windy weather.

What happens when electricity prices are negative? ›

Negative electricity prices result either from local congestion of the transmission system leading supply to exceed demand locally or due to system-wide oversupply.

What is an example of a negative price? ›

Negative prices arise in situations where investors determine that holding an asset entails more risk than the current value of the asset. For example, energy futures see negative prices because of costs associated with overproduction and limited storage capacity.

What does a negative change in price mean? ›

Price change in finance is the difference between the initial and final values of an asset, security, or commodity over a particular trading period. The change is termed a positive change when the initial value is lower than the final value and negative if the end value is lower than the initial value.

What affects the cost of energy? ›

Variations in electricity demand. Availability of energy sources and fuels. Fuel costs. Power plant availability.

Can a future have a negative price? ›

Is the futures market broken? No. The fact that a futures contract has a negative price does not mean the market is not functioning correctly. To the contrary, when supply and demand are that far out of equilibrium, the futures market would not be functioning correctly if it did not show a negative price.

What is negative electricity? ›

negative electricity in American English

noun. the electricity present in a body or substance that has an excess of electrons, as the electricity developed on a resin when rubbed with flannel. Compare positive electricity.

What is the case of negative day ahead electricity prices? ›

Negative power prices on the electricity exchange occur when a high and inflexible power generation appears simultaneously with low electricity demand. This is often the case on public holidays such as Christmas or Pentecost.

What will a decrease in the price of electricity cause? ›

Answer and Explanation:

When the electricity prices decline, then the overall input costs of producing goods decreases. This causes the producers to produce more quantities of output. This decrease unemployment and the short-run aggregate supply shifts rightwards.

Can price effect be negative? ›

In contrast, if the price increases, its demand will fall. As a result, it causes an indirect relationship between price and quantity purchased. Likewise, for Giffen or inferior goods, this effect is negative. So, if the price of these goods falls, their demand reduces.

Can change in price be negative? ›

If there is a negative percentage change in price, it means there is a price decrease.

What are the causes of price change? ›

Prices can change for many reasons (technology, consumer preference, weather conditions). The relationship between the supply and demand for a good (or service) and changes in price is called elasticity.

What are the major reasons for price increases in energy? ›

As demand for a commodity like natural gas increases, so does the price. Similarly, when demand wanes, prices may fall. The amount of available supply can also affect your rates. If a surplus exists, prices may decrease; and when supplies run short, energy prices often increase.

Why is lower energy costs good? ›

Reducing energy use in your home saves you money, increases our energy security, and reduces the pollution that is emitted from non-renewable sources of energy.

What is the problem with negative energy? ›

It can come from negative people, from your surroundings, or from your own psyche. It can leave you exhausted both mentally and physically. Negative energy perpetuates itself, therefore, breeding more negativity. Learning to deal with negative energy is important for your health and happiness.

Is negative pricing a long term phenomenon? ›

Economist Carl-Christian von Weizsäcker speaks of a "negative natural interest rate" as a phenomenon that is by no means temporary, but rather permanent.


Top Articles
Latest Posts
Article information

Author: Rev. Porsche Oberbrunner

Last Updated:

Views: 6396

Rating: 4.2 / 5 (73 voted)

Reviews: 80% of readers found this page helpful

Author information

Name: Rev. Porsche Oberbrunner

Birthday: 1994-06-25

Address: Suite 153 582 Lubowitz Walks, Port Alfredoborough, IN 72879-2838

Phone: +128413562823324

Job: IT Strategist

Hobby: Video gaming, Basketball, Web surfing, Book restoration, Jogging, Shooting, Fishing

Introduction: My name is Rev. Porsche Oberbrunner, I am a zany, graceful, talented, witty, determined, shiny, enchanting person who loves writing and wants to share my knowledge and understanding with you.