"Selecting the cheapest plants" - that is the claim, but, again, emprically this does not happen and paying every generator the same market clearing price (which is what marginal markets do) is utterly brainless (in the case of renewables & other CAPEX generation) given that the market platforms know exactly what is being bid in (they publish their data structures - at least EEX does). Spain 0700hrs today cleared @ Euro130 - which is above the Euro100/MWh that gas elec costs & @ 1300hrs cleared @ Euro83/MWh - below the cost of gas - but above, arguably the cost of PV (or wind for that matter). As I said, the number don't lie & they show that marginal markets have failed, they cause stupid price oscillations which only benefit traders. Point: Spainish RES should only be paid the auction price - that's it. Junk the CfDs and change the platform databases to reflect this - thus the RES generators only bid in volume. Won't happen because the traders would hate it, it would make elec markets more stable & reflect real costs of production.
The marginal market "a tool for selecting efficiently the cheapest power plants for a given electricity mix". It would be helpful to define "efficiently" in this context. Keeping in mind, any & all market prices should reflect production costs for what is sold. Elec markets, as is, don't. Indeed a marginal market is functionally incapable of delivering prices that reflect production costs - empirically this can be seen every single day. I'm not offering "a point of view", I am saying that the data shows that marginal markets have failed, &did so quite some years ago & actions to remedy the failure are "sticking plasters over gaping wounds". That nothing substantial is done is a reflection of both the force of the trader lobby and the incapacity of many observers of what is happening - who seem to take a quasi-religious attitude to marginal markets - while ignoring the numbers. The numbers don't lie.
Marginal markets ar selecting the cheapest power plants for a given mix at a given time (there are as many markets as hours). If you were a regulated monopoly, you would also commit your power plants based on a marginal cost.
What the marginal cost markets lack are long term incentives for investing in new generation (or even keep the existing ones), and not all the costs are recouped. That's the issue. But for selecting the power plants at a given time, the market works.
Marginal markets are functionally incapable of “selecting efficiently the cheapest power plants for a given electricity mix” this can be seen almost every day, on every market. If I walk to the local Friday market, I do not ever see traders offering me money to take away their goods. When power generation featured mostly dispatchable generation marginal markets +/- functioned. This is, empirically no longer the case, a reality which market platforms and traders do not want to acknowledge – for obvious reasons. In the case of CfDs these were created for two purposes: keep the marginal market going whilst providing a predictable revenue stream for CAPEX-based renewables, without which they would not be built. All this nonsense could be solved by, as I have already noted, splitting “the market”. Keep marginal for the fossil mob, fixed price/auction price for nukes/hydro/renewables. Easy to do, all the data is on the platforms. The reason it does not happen is that doing this would reduce market volatility, which is how traders make their money.
Great article about the real costs of renewable (ie. Non steady producing) power technologies. See recent FT article entitled “Gridlock in China” where some areas are not using 90% of solar yet have to buy power from coal plants in the evening (here is gift link) https://on.ft.com/3xSt9al
The problem (duck curve/low prices) can be resolved in different ways in different locations. In the case of France & Spain - power cold storage to use with A/C once the sun goes down. In the case of Germany, the marginal market is +/- dead in the case of RES. Thus market split into CAPEX & OPEX is the way forward, couple that to electrolysers @ congested nodes (pull of excess power). That this is not happening is a reflection of the "marginal market fanatics" that continue to think this market works.
I think that we should not value the short-term market for what it is: it is a tool for selecting efficiently the cheapest power plants for a given electricity mix. It gives in general a poor signal for long-term investment, and it is no wonder that we create CfD for renewables, capacity markets for fixed assets, support for nuclear, etc.
I wonder how negative rates will influence other phenomenon, such as desalination. You could, theoretically, drive the ultra cheap solar to desalination projects, and then drive back to residential or industry when rates rise at the end of the afternoon.
All of the potential offtakers users have far too high capitol cost to live off just ‘excess’ solar, and the low CF% that would let them run their facility.
CF%= capacity factor, typically as percent of installed capacity.
Solar is typically providing 10-20% of installed capacity averaged over year. But, in the theme of the article, averages don’t tell the full story. In given hour on a cloudless day, it could near 100%. But, every night it’s 0%.
In the context of the point of using the negative priced solar to run a plant/process, you need to find something that needs lots of intermittent power, a few hours a day in the summer.
The unicorn solution is power storage - but, so far, nothing that scales to running a utility for weeks on end exists.
I’ve noticed this dynamic seems to have many fossil and nuclear proponents dunking on renewables as unworkable. But we’ve know the intermittent nature of solar and wind. This is nothing new.
Obviously storage is necessary. And it occurs to me that it will not be the domain of renewables only. Traditional operators, if they are getting paid more, will benefit from adding storage so they can deliver more flexibly around solar generation maximums.
Yes, you could be right, or, the capital return on investment in renewables is unsustainable without massive subsidies and our civilization collapses because we are destroying our grid.
"Selecting the cheapest plants" - that is the claim, but, again, emprically this does not happen and paying every generator the same market clearing price (which is what marginal markets do) is utterly brainless (in the case of renewables & other CAPEX generation) given that the market platforms know exactly what is being bid in (they publish their data structures - at least EEX does). Spain 0700hrs today cleared @ Euro130 - which is above the Euro100/MWh that gas elec costs & @ 1300hrs cleared @ Euro83/MWh - below the cost of gas - but above, arguably the cost of PV (or wind for that matter). As I said, the number don't lie & they show that marginal markets have failed, they cause stupid price oscillations which only benefit traders. Point: Spainish RES should only be paid the auction price - that's it. Junk the CfDs and change the platform databases to reflect this - thus the RES generators only bid in volume. Won't happen because the traders would hate it, it would make elec markets more stable & reflect real costs of production.
The marginal market "a tool for selecting efficiently the cheapest power plants for a given electricity mix". It would be helpful to define "efficiently" in this context. Keeping in mind, any & all market prices should reflect production costs for what is sold. Elec markets, as is, don't. Indeed a marginal market is functionally incapable of delivering prices that reflect production costs - empirically this can be seen every single day. I'm not offering "a point of view", I am saying that the data shows that marginal markets have failed, &did so quite some years ago & actions to remedy the failure are "sticking plasters over gaping wounds". That nothing substantial is done is a reflection of both the force of the trader lobby and the incapacity of many observers of what is happening - who seem to take a quasi-religious attitude to marginal markets - while ignoring the numbers. The numbers don't lie.
Thanks. I do not agree, or at least partly.
Marginal markets ar selecting the cheapest power plants for a given mix at a given time (there are as many markets as hours). If you were a regulated monopoly, you would also commit your power plants based on a marginal cost.
What the marginal cost markets lack are long term incentives for investing in new generation (or even keep the existing ones), and not all the costs are recouped. That's the issue. But for selecting the power plants at a given time, the market works.
Marginal markets are functionally incapable of “selecting efficiently the cheapest power plants for a given electricity mix” this can be seen almost every day, on every market. If I walk to the local Friday market, I do not ever see traders offering me money to take away their goods. When power generation featured mostly dispatchable generation marginal markets +/- functioned. This is, empirically no longer the case, a reality which market platforms and traders do not want to acknowledge – for obvious reasons. In the case of CfDs these were created for two purposes: keep the marginal market going whilst providing a predictable revenue stream for CAPEX-based renewables, without which they would not be built. All this nonsense could be solved by, as I have already noted, splitting “the market”. Keep marginal for the fossil mob, fixed price/auction price for nukes/hydro/renewables. Easy to do, all the data is on the platforms. The reason it does not happen is that doing this would reduce market volatility, which is how traders make their money.
Great article about the real costs of renewable (ie. Non steady producing) power technologies. See recent FT article entitled “Gridlock in China” where some areas are not using 90% of solar yet have to buy power from coal plants in the evening (here is gift link) https://on.ft.com/3xSt9al
The problem (duck curve/low prices) can be resolved in different ways in different locations. In the case of France & Spain - power cold storage to use with A/C once the sun goes down. In the case of Germany, the marginal market is +/- dead in the case of RES. Thus market split into CAPEX & OPEX is the way forward, couple that to electrolysers @ congested nodes (pull of excess power). That this is not happening is a reflection of the "marginal market fanatics" that continue to think this market works.
I think that we should not value the short-term market for what it is: it is a tool for selecting efficiently the cheapest power plants for a given electricity mix. It gives in general a poor signal for long-term investment, and it is no wonder that we create CfD for renewables, capacity markets for fixed assets, support for nuclear, etc.
I wonder how negative rates will influence other phenomenon, such as desalination. You could, theoretically, drive the ultra cheap solar to desalination projects, and then drive back to residential or industry when rates rise at the end of the afternoon.
All of the potential offtakers users have far too high capitol cost to live off just ‘excess’ solar, and the low CF% that would let them run their facility.
Could I ask what CF% means? Sorry for the basic question!
CF%= capacity factor, typically as percent of installed capacity.
Solar is typically providing 10-20% of installed capacity averaged over year. But, in the theme of the article, averages don’t tell the full story. In given hour on a cloudless day, it could near 100%. But, every night it’s 0%.
In the context of the point of using the negative priced solar to run a plant/process, you need to find something that needs lots of intermittent power, a few hours a day in the summer.
The unicorn solution is power storage - but, so far, nothing that scales to running a utility for weeks on end exists.
Thanks a lot! That's very clear and helpful :)
One of the unicorn solution is (partly) thermal storage in my opinion. As well as EV charging. But probably not being developed as fast as solar.
Yes, CF% applies to users as well, not just producers.
Fascinating. The details of finance are fascinating. Thanks for taking the time
Interesting piece thanks
I’ve noticed this dynamic seems to have many fossil and nuclear proponents dunking on renewables as unworkable. But we’ve know the intermittent nature of solar and wind. This is nothing new.
Obviously storage is necessary. And it occurs to me that it will not be the domain of renewables only. Traditional operators, if they are getting paid more, will benefit from adding storage so they can deliver more flexibly around solar generation maximums.
Yes, you could be right, or, the capital return on investment in renewables is unsustainable without massive subsidies and our civilization collapses because we are destroying our grid.