Europe witnessed an unprecedented increase in annual hours of negative prices this year, moving from 154 in 2018 to 1,031 as of September 2024. In the latest paper by Eurelectric, we argue that the Commission can kill two birds with one stone, addressing high and negative prices in one fell swoop.
How? The answer is multifaceted. There is no one-size-fits-all solution but rather a toolbox of solutions, including accelerated electrification, roll-out of storage and flexibility and a more market-reactive design of renewables support schemes.
But why do negative prices matter?
While the undesirable impacts of high energy prices are clear, the impact of negative prices is more complex. While not being problematic in and of themselves, their sustained occurrence can have both positive and negative impacts on investment in the energy sector at the same time.
- Positive, because it demonstrates we have a large amount of renewable electricity generation, reducing prices. In this case, negative prices act as an incentive to develop storage, flexibility options and more demand to harness the low operating costs of ample supply of decarbonised electricity.
- Negative, because if sustained for a long period, the business case for new investments for renewable capacity becomes more unpredictable, at a time when attracting capital is crucial.
Why negative prices happen?
The drivers differ across European markets, but one common key reason for the occurrence of negative prices is the combination of favourable weather conditions resulting in high electricity supply at times of low demand like holiday seasons.
This is an oversimplification of a complex system, to which, a more detailed outline can be found in our paper, including the particularities of different EU Member States based on local conditions. Nonetheless, this simple explanation is important to reinforce the system improvements we propose.
What to do?
Our paper highlights three ways to address the negative price situation which also touch the market mechanism that leads to high prices.
- We need to foster greater electrification with an Electrification Action Plan that promotes demand which can be served by abundant renewable generation. At the same time, electrification improves energy efficiency and can help customers lower their overall energy demand and therefore, costs.
- We need to develop flexibility sources at scale and for varying timeframes to give a shelf life to abundant but variable renewable electricity generation, limiting negative prices by matching supply to demand, and reducing high energy prices by enabling cheaper clean and renewable generation to serve more of consumer demand.
- We need an appropriate design of support schemes that reflect realities of the system. This means responsive price signals for a better matching of supply and demand, creating a favourable investment environment for cheaper clean and renewable energy capacity additions.