During the last few months we have seen that, at certain times, the price of electricity (price per megawatt hour) in the daily wholesale market (pool) has been negative. This means that electricity generating companies had to pay for injecting megawatt hours into the grid. But why does electricity become negatively priced, how does this affect the final consumer and energy producers, and do negative energy prices constitute a threat to self-consumption?
Firstly, let us define why this situation occurs. If the pool coincides with a moment of high electricity supply (many production facilities want to sell their energy) and, at the same time, very little demand (a spring Sunday at midday with mild temperatures, with industries at a standstill, and no air conditioning or electric heating, for example), it is possible that the price of electricity becomes so low that it becomes negative. That is, there is an oversupply in excess of demand, and all the electricity supplied cannot be fed into the grid. Prices will be negative if there are generating facilities that cannot or do not want to stop producing, so they will have to pay if they want to inject their energy into the grid.
In recent months, this situation of oversupply has arisen due to the coincidence of several factors. One of them has been the excess photovoltaic production at midday, from all the photovoltaic parks at the same time, which is precisely when there is less demand. Production at these facilities cannot be deferred, although it can be managed (by shutting down production). In contrast, nuclear power plants and combined cycle plants, which have a lot of inertia, simply find it cheaper to pay to inject energy into the grid than to stop-start, stop-start. Therefore, renewable energy installations, such as wind and photovoltaic, are more likely to shut down. This means that, at the times when this happens, the generation mix is dirtier (higher percentage of fossil fuel use compared to renewable energies). This implies: higher CO2 emissions and/or nuclear waste.
Regarding the monetary aspect, the negative price mechanism does not necessarily have to be particularly harmful for producers, as in many cases there are bilateral contracts (i.e. the producer has already sold the energy it produces directly to the end customer without going through the wholesale market and price volatility). Thus, for example, a photovoltaic installation that has already sold its energy will inject it into the grid to meet its client’s needs, and will have secured a minimum or fixed income, despite having to pay a certain amount to be able to do so.
In the case of solar farms, this is a diversified generation technology, in the hands of various companies that have been building their installations in the order of megawatts, so there are more movements of solar PPAs (lpower purchase agreements). In contrast, this is not the case with nuclear, combined cycle and large hydro, which are divided between Endesa, Iberdrola, Naturgy and EDP. Similarly, 50% of wind energy is in the hands of four companies.
However, negative prices may have a disincentive effect on renewables, as developers may find it difficult to finance new installations.
Faced with the problem of low or negative prices and their possible disincentive effect, the solutions would be to increase demand at times of oversupply (such as encouraging the charging of electric vehicles) and to implement energy storage solutions, such as reversible pumping or battery energy systems (BES).
And for the end-user consumer, are negative prices beneficial?
Those consumers who have contracted the regulated tariff (the Voluntary Price for Small Consumers, PVPC) directly see the reduction in the price of electricity on the market, as their tariff is indexed. Although the rest of consumers do not see this reduction immediately, they will benefit from it in the medium term, as the distributors will have to adjust their prices to make them competitive with the PVPC and not lose customers.
How does this affect self-consumption? The fact that energy from the grid is so cheap could be detrimental to the progress of PV self-consumption. However, it should be noted that these situations of low and even negative prices are occasional. They will continue to occur, but they will happen at very specific moments when several factors coincide at the same time (a lot of sun, a lot of hydro capacity, etc.) Over time, the market will be able to self-regulate and balance supply and demand. The electrification of the latter – which is the trend in Spain and Europe – will help stabilise the electricity market and promote the implementation of new prosumers, with the massive introduction of batteries, electric vehicles and the replacement of boilers with aerothermal energy and heat pumps.
Therefore, self-consumption is not at a real risk, and remains a very profitable option especially for the industrial sector.