New insight into negative electricity prices
The imperative of moving toward low-carbon power generation has modified market mechanisms and created the need to enhance understanding of electricity price risks. The dynamics of electricity price formation are radically different and are likely to undergo further fundamental changes. Whilst negative wholesale prices are present and electric power companies are reporting major asset impairments, retail prices continue to rise. With the support of EU funding, the project 'Auction and day-ahead markets spikes' (AADAMS) shed further light on the occurrence of spikes and abnormal prices in the electricity market with suitable modelling techniques. AADAMS provided compelling evidence that the stochastic nature of intermittent sources poses a new set of distributional properties for power prices. In particular, negative prices were found to induce non-normal and, importantly, time-varying shapes of the probability distribution. Project results were based on the German market, which has set the lead in fighting climate change with renewable energy technologies. The negative prices signified lack of investment in flexible power generation and, most importantly, absence of market coupling. For instance, cheaper electricity generation or negative prices in Germany can help meet demand and reduce prices in neighbouring countries. Another focus was on worldwide regulatory practices regarding the electricity and gas sectors. AADAMS revealed the potential to form a trans-governmental network for energy policy that is able to affect the adoption of best practices. To enhance understanding of the abnormal price dynamics in wholesale electricity prices, AADAMS considered day-ahead markets, exercise of market power and policy interventions. The increasing share of renewable energies for electricity generation such as wind and solar photovoltaic is an important driver due to the intermittency of the energy source. AADAMS extensively investigated the phenomena of negative prices on power exchange and the behaviour of electricity markets with high renewable energy shares.
Keywords
Electricity prices, renewable energy, day-ahead markets, negative prices, energy policy
