Good article and analysis. I’m curious about the implications of negative power prices in those regimes. Are the negative settled trades paid by private companies or public utilities? If costs are borne by utilities, that would add to the cost base paid by the public. Any references or links to this angle?
Seems to me that it all boils down to subsidies. No subsidies, no surplus production, no negative prices. But hey what happens to the economic case for solar without subsidies?
The article as per previous, looks at the problem (low negative prices due to growing RES surplus) only through a market lens. The assumption is that “a bit more market” or perhaps “some changes to market functionality” will fix things. It won’t since it ignores a fundamental: marginal markets on which current elec markets rest do not deliver a price that reflects cost of production (empirically – as per the graphs) when renewables are involved. Marginal markets work when there is some sort of fuel input, with a cost attached to it (which implies generation that is deterministic). This is a reality. The article also ignores another reality: renewables don’t get built unless there is a multi-year guaranteed revenue stream. For the avoidance of doubt: I develop renewables. As renewables grow, so surpluses grow (non-linearly) so prices decline. The answer is storage & the only tech that can scale to the hundreds of GWhs that e.g. DE will need by 2030 is hydrogen. What Europe is experiencing is an energy transformation – which needs to be engineered. Market are functionally incapable of engineering, they price things – although in the case of EU elecs market – they do this increasingly badly. The above is a reflects reality held not just by me , but also with a large element within the European Commission (DG ENER excepted – they live in a “elec markets are perfect” fantasy land).
Shouldn’t you also be looking at volumes traded in the day ahead markets versus bilaterals and forwards? If all power was sold in the short term market (like it happens in centrally dispatched markets) the spot price would be different?
I believe you need to change the rankings between reason 5 and reason 1. Germany has less than 4% Hydro and circa 11% capacity solar. While it's true that Solar is driving negative pricing, it is ultimately thermal plant 33% coal, 12% Gas, 12% Nuke in Germany that is willing to pay to stay on.. this makes sense for them as they are really expensive to 2-shift... What we need is energy shifting and phase out of as much thermal as will be possible - probably 80-82%... Won't be possible without paying for storage and stabilising investment signals... but there's a vested industry advocating a volatile market also... (just a view).
Thanks for the explanation. I'm not sure I fully understand Reason 1 (It is impossible to reduce generation or to switch off). Certainly, a nuclear plant can't feasibly shut down for an hour or two when prices turn negative. But, isn't there some place in the distribution system where even a nuclear plant could be disconnected for an hour or two? Or does the distribution system also not have the incentives to install flexibility?
Thermal plants can take hours or days to return to full power. Some are equipped with the ability to dump steam so they can remain at power while not producing electrons (which have to go somewhere if produced)
Ontario had the experience where ending wind and solar priority resulted in saving $200 million and 2 million tons of CO2 a year as they were shutting down nuclear and balancing with gas
Electrons have to go somewhere if produced? Could you explain that? I've used small generators, and they always start without a load connected. What would happen if I never attach a load? Are large generators different?
Edit to add: What about solar panels? I investigated getting solar panels for my house, and was told that, if the local grid was down, the solar panels would be disconnected - they couldn't recharge batteries, they couldn't power my house, they would be offline until the grid was restored. So, solar panels can be disconnected, and presumably still generate electrons if the sun is shining, yet the electrons have nowhere to go.
Copilot tells me the panels still generate electrons which can cause overheating. I think generally the panel size vs amount of electricity means the energy can dissipate as heat almost always
So for a large plant to run a turbine without a load something would overhead fast. Some Candu nuclear plants can open a valve on their steam and disconnect the turbine while the reactor still runs and dumps the energy as steam
Generally, renewables are easy to switch off and should not stay on when prices go negative. Regulated tariffs that do not cater for negative prices should be the rule (and they are, mostly, for new installations, at least the large scale kind)
Indeed. If you have the right incentives for the large-scale renewables, you already solve the issue of large negative prices most probably (like Spain in a way). Yet, you would still hours with limited negative hours probably, but if it is only -1 or -2 €/MWh, it is almost like zero, should not be an issue at all.
In the long term, we would also need to fix the incentives for the distributed solar though. It is not impossible of course.
Good article and analysis. I’m curious about the implications of negative power prices in those regimes. Are the negative settled trades paid by private companies or public utilities? If costs are borne by utilities, that would add to the cost base paid by the public. Any references or links to this angle?
Seems to me that it all boils down to subsidies. No subsidies, no surplus production, no negative prices. But hey what happens to the economic case for solar without subsidies?
The article as per previous, looks at the problem (low negative prices due to growing RES surplus) only through a market lens. The assumption is that “a bit more market” or perhaps “some changes to market functionality” will fix things. It won’t since it ignores a fundamental: marginal markets on which current elec markets rest do not deliver a price that reflects cost of production (empirically – as per the graphs) when renewables are involved. Marginal markets work when there is some sort of fuel input, with a cost attached to it (which implies generation that is deterministic). This is a reality. The article also ignores another reality: renewables don’t get built unless there is a multi-year guaranteed revenue stream. For the avoidance of doubt: I develop renewables. As renewables grow, so surpluses grow (non-linearly) so prices decline. The answer is storage & the only tech that can scale to the hundreds of GWhs that e.g. DE will need by 2030 is hydrogen. What Europe is experiencing is an energy transformation – which needs to be engineered. Market are functionally incapable of engineering, they price things – although in the case of EU elecs market – they do this increasingly badly. The above is a reflects reality held not just by me , but also with a large element within the European Commission (DG ENER excepted – they live in a “elec markets are perfect” fantasy land).
Shouldn’t you also be looking at volumes traded in the day ahead markets versus bilaterals and forwards? If all power was sold in the short term market (like it happens in centrally dispatched markets) the spot price would be different?
I believe you need to change the rankings between reason 5 and reason 1. Germany has less than 4% Hydro and circa 11% capacity solar. While it's true that Solar is driving negative pricing, it is ultimately thermal plant 33% coal, 12% Gas, 12% Nuke in Germany that is willing to pay to stay on.. this makes sense for them as they are really expensive to 2-shift... What we need is energy shifting and phase out of as much thermal as will be possible - probably 80-82%... Won't be possible without paying for storage and stabilising investment signals... but there's a vested industry advocating a volatile market also... (just a view).
Thanks for your comments.
Just for clarification, it was just a list, not a ranking 🙃
Congratulations on the Economist quote. It speaks to the quality and consistency of your work.
Thanks. Appreciated.
Thanks for the explanation. I'm not sure I fully understand Reason 1 (It is impossible to reduce generation or to switch off). Certainly, a nuclear plant can't feasibly shut down for an hour or two when prices turn negative. But, isn't there some place in the distribution system where even a nuclear plant could be disconnected for an hour or two? Or does the distribution system also not have the incentives to install flexibility?
Thermal plants can take hours or days to return to full power. Some are equipped with the ability to dump steam so they can remain at power while not producing electrons (which have to go somewhere if produced)
Ontario had the experience where ending wind and solar priority resulted in saving $200 million and 2 million tons of CO2 a year as they were shutting down nuclear and balancing with gas
Electrons have to go somewhere if produced? Could you explain that? I've used small generators, and they always start without a load connected. What would happen if I never attach a load? Are large generators different?
Edit to add: What about solar panels? I investigated getting solar panels for my house, and was told that, if the local grid was down, the solar panels would be disconnected - they couldn't recharge batteries, they couldn't power my house, they would be offline until the grid was restored. So, solar panels can be disconnected, and presumably still generate electrons if the sun is shining, yet the electrons have nowhere to go.
Copilot tells me the panels still generate electrons which can cause overheating. I think generally the panel size vs amount of electricity means the energy can dissipate as heat almost always
So for a large plant to run a turbine without a load something would overhead fast. Some Candu nuclear plants can open a valve on their steam and disconnect the turbine while the reactor still runs and dumps the energy as steam
Great Julien
Generally, renewables are easy to switch off and should not stay on when prices go negative. Regulated tariffs that do not cater for negative prices should be the rule (and they are, mostly, for new installations, at least the large scale kind)
Indeed. If you have the right incentives for the large-scale renewables, you already solve the issue of large negative prices most probably (like Spain in a way). Yet, you would still hours with limited negative hours probably, but if it is only -1 or -2 €/MWh, it is almost like zero, should not be an issue at all.
In the long term, we would also need to fix the incentives for the distributed solar though. It is not impossible of course.