There have been 149 hours of negative pricing in Great Britain so far in 2024. This follows 107 hours in 2023, and just 29 in 2022. We project this growth to continue through to 2027, when we could see 1,000 hours of negative pricing.
This increase is driven by growth in subsidized, price-insensitive generation capacity, combined with low demand.
Negative prices increase the spreads available to batteries, increasing revenues. 49 hours of negative pricing in August were a major contributor to batteries earning their second-highest monthly revenues of the year so far.
Negative power prices occur when supply exceeds demand for power
In the day-ahead market, prices are set by the most expensive generator required to meet total demand. When the total supply of negative-priced or inflexible generation exceeds demand, the marginal price becomes negative.
There are four main reasons that generators bid negative prices into the day-ahead auction (or don’t respond to prices at all):
- Nuclear plants face high shut-down costs that make them ‘must-run’ at most price levels
- Rooftop solar cannot be turned down in response to prices.
- Renewables receive additional income per MWh of power sold from subsidies or green certificates, and price their bids at the opportunity cost of not receiving this income.
- Interconnectors import power from Europe when prices there are more negative than in Britain.
The majority of negative prices are above -£5/MWh and occur because of REGOs
So far in 2024, negative prices have ranged from slightly less than £0/MWh down to -£25/MWh. This is above the level at which most subsidized renewables would need to stop generating.
Instead, most prices are set by unsubsidized renewable capacity receiving Renewable Energy Guarantees of Origin certificates (REGOs), or by European prices through interconnectors.
The majority of negative prices have been between £0 and -£5/MWh. Of these, most are not driven by prices in neighboring countries, but instead likely by the value of REGOs.
These certificates provide renewable generators with an additional income per MWh of energy sold. REGOs are a market-traded commodity, historically worth anywhere between £3-20/MWh.
Interconnectors are setting increasingly negative prices
2024 has seen negative prices occur in some European countries at a far higher frequency than in Great Britain, driven by similar dynamics.
Over half the time, prices are more negative in Europe than Britain. When this occurs, interconnectors flow towards Great Britain, looking to dump this power for a better price - even if this is still negative. Interconnector flows then become the marginal generator, setting prices here.
Prices across Europe suggest this has happened in 79 of the 149 hours to have occured so far in 2024. These have set the lowest negative prices recorded, and most negative prices that occur during the middle of the day. This is due to a surplus of solar generation in Europe.
Negative prices become less common after 2027
Collectively, 23% of the generation stack now has some level of price insensitivity. This has caused the increase in negative prices seen over the last four years and will continue to increase the frequency of negative prices until 2027.
However, developers are now building renewable capacity unsubsidized, or with CfDs that don’t pay out during negative price periods. Since Allocation Round 2 (AR2) of the CfD scheme, generators with contracts have started facing exposure to negative prices.
Alongside a short-term reduction in nuclear capacity, this means that the proportion of the generation stack that is price-insensitive falls to 15% by 2028. Combined with an 18% increase in average demand, this reduces the frequency of significantly negative prices.
The frequency of slightly negative prices continues to increase beyond 2030 due to the value of REGOs, but the frequency of prices below -£5/MWh declines to 0.