From wind turbines in the mountains in Norway to solar panels in the roofs of Australia, renewable energy is flooding electrical networks as never before. Since the production of these new sources of energy fluctuates with the changing winds and the sun, often supply more electricity than networks can absorb, which gives rise to the curious phenomenon of.
It is likely that this year a record number of hours will be registered in which the price of electricity falls below zero. While all that cheap energy can be good news for homes and industries, it is a serious concern for investors in renewable energy assets, since prices volatility threatens the stability of profits.
What causes negative electrical prices?
Electricity is marketed in wholesale markets similar to oil and natural gas. The difference is that these basic products can be stored in tanks and large ships until they are needed, while the volume of batteries that connect to the network to store electricity has not yet been equated with.
Since electricity occurs and consumes instantly, if the generated energy exceeds demand and cannot be stored for subsequent use, prices may fall below zero. When this happens, producers have to pay customers (the companies that sell) to take care of the energy surplus.
Why are negative prices of electricity more and more common?
The efforts to reduce carbon emissions are promoting the quota of renewable energies in networks around the world, which makes the electricity supply increasingly volatile.
Electricity production from wind turbines may increase or decrease dramatically in a matter of hours. And the expansion of solar energy converts excess supply into a growing problem during the day, especially around noon and in the summer months, when the generation reaches its maximum point. Germany, the largest solar market in Europe, is expected to exceed 100 gigawatts of solar capacity installed in 2025, more than double than five years ago, according to Bloombergnef data. The solar generation in the country is expected to reach almost 20% of its total annual electrical production. In Spain, the photovoltaic solar accounted for 17% of the energy produced last year, according to the Electric Red report.
On weekends and holidays are more likely at negative energy prices due to the coincidence of a lower demand for electricity and, depending on the weather, the continuous influx of renewable energy.
Couldn’t you simply turn off the excess renewable energies or other energy sources to compensate?
It is not so simple. Activating and deactivating nuclear, coal and gas plants can be slow and expensive. A new generation of gas plants that can increase and reduce its production in a matter of minutes has been developed. However, the process may take hours for the oldest facilities that work with coal and nuclear energy, which normally “continue to operate independently of the market price, which amplifies the impact of other factors that drive negative prices,” says Jannik Carl, associate researcher at Aurora Energy Research.
In addition, there is no penalty to continue producing electricity when there is little demand, and state subsidies designed to promote clean energy imply that renewable generators often have an incentive to continue pouring electricity on the network even.
Germany seeks to address this distortion by reducing the group of solar producers eligible for their “food rate” when market prices become negative. It is a government subsidy that guarantees a minimum price for certain renewable energy developers for each kilowatt-hour of electricity that they produce, even if that energy is not necessary.
Some network operators pay renewable assets to disconnect and thus avoid system overload, but it is a expensive option. Known as “restriction”, this practice cost more than 1,000 million pounds (1,174 million euros) in the United Kingdom in 2024 and is expected to exceed 1.8 billion pounds in 2025, according to the national energy system operator.
What countries are most affected by negative electricity prices?
Electricity prices below zero were registered for the first time in Germany in 2008, when the country increased its wind and solar capacity.
They have become increasingly common worldwide in recent years, from Europe to Australia and the United States.
Finland beat all other European markets in 2024 with 725 hours with negative prices, compared to only five of 2021, thus exceeding the 455 hours of Germany, according to Aurora data.
The limited capacity of high voltage cables to export electricity, known as interconnectors, prevented Finland from selling more than its excess production to other countries.
In Australia, the rapid abandonment of coal and the mass adoption of domestic solar energy has made it a case of test for energy transition. The main network of the country has had difficulty managing supply peaks during the brightest hours of the day. Prices spot From energy they fell below zero during a record of 23% of the time in the last quarter of 2024. Some public service companies, such as Ovo Energy, have been offering free energy to homes at lunchtime.
In the US, the negative prices of energy are increasingly frequent and severe due to the increase in wind and solar generation and the growing bottlenecks on the network. Prices are observed below zero everywhere, from Texas and California to the PJM network in the east of the country, which covers 13 states and the district of Columbia.
In Texas, there are even during the hours of greater demand, ranging from 6.00 at 10 pm during the week. At the end of October 2024, the daily average price in western Texas was negative for two consecutive days at this time peak and reached a historical minimum of $ 7.37 per Megavatio-Hora, according to network data collected by McG Energy Solutions.
What’s wrong with electricity prices below zero?
The risk is that renewable energies become victims of their own success. Subsidies that encouraged the implementation of wind and lots are gradually eliminated in many markets, and projects must demonstrate that they can prosper without government support. However, negative prices reduce the average wholesale price offered to generators, which reduces green energy profits.
If renewable energy projects seem less economically attractive to build, this could slow down the transition to an electrical system of zero net emissions.
In Spain, solar energy is so widespread that it is causing long periods in which prices are zero. In an attempt to protect their negative and volatile price projects, renewable energy promoters are signing long -term agreements to sell their energy to corporate consumers. These agreements are usually extended for more than a decade. However, this runs the risk of aggravating the problem by creating even less incentives for renewable energy producers to reduce the generation during periods of surpluses.
Does anyone benefit from negative energy prices?
Price volatility creates opportunities for new companies to enter in a sector dominated for a long time for traditional electricity. Battery assets owners can take advantage of the fluctuation of energy prices buying electricity to load when prices are low or negative and downloading to the network when prices rise.
There are also a lot of new technological companies specialized in the negotiation of large volume in the short term.
Many of these use algorithms to process thousands of transactions per day and take advantage of marginal price differences between markets.
Do negative energy prices imply lower electricity bills?
Not necessarily. Negative prices are reflected in the wholesale market. In the final invoice paid by the consumer, not only is it strictly paid for the energy produced by the electricity generation (nuclear, photovoltaic, wind….), But also other costs such as tolls and charges, capacity payments. Hence there are never negative prices on the bill, although it can be somewhat cheaper.
On the other hand, there are many consumers who have fixed price contracts that do not reflect the daily or hourly fluctuations of wholesale energy markets.
Likewise, consumers who have the regulated rate called voluntary price for the small consumer (PVPC) would not benefit also because this tariff inclines an adjustment mechanism: when there are low prices in the daily market, that adjustment makes the price of the KWH more expensive, and it is assumed that when prices are triggered it will have negative value and reduce the price. In this way it is achieved that the invoice fluctuates little depending on the demand.
Are the negative prices of energy the new normality?
As more renewable energies are connected to the network, electricity prices are likely to fall below zero more frequently in the coming years, unless battery storage increases to absorb most of the surplus of energy production.
The COUPCATION Batteries along with wind and solar assets is becoming more popular, since renewable energy promoters seek to store their excess production and take advantage of arbitration opportunities derived from the volatility of electricity prices.
A greater network capacity would also help avoid negative energy prices, since excess supply in an area could be transferred to countries and regions with greater demand.
Locating batteries closer to these demand centers could also relieve network congestion problems and pressure to undertake costly improvements.
