Statistical analysis of negative prices in European balancing markets

Abstract

a b s t r a c tThe presence of renewable power generation technologies increases the need for system flexibility due to their variable nature. The increasing share of variable renewables in European power systems create a downward adequacy problem, which deals with the ability of power systems to cope with periods of excess generation. The occurrence of negative prices on Central Western European electricity markets confirms the relevance of this issue, which is referred to as "incompressibility of power systems" and is assessed as a barrier for further renewable power integration. The objective of this article is to identify the main drivers of negative price periods in European balancing markets, by means of both an empirical and regression analysis. Results confirm a positive relation with the scheduled generation of renewables and inflexible base load, as well as a negative relation with the scheduled system load. Furthermore, the occurrence of negative prices is related to the positive and negative forecast error of renewable generation and demand, respectively. It is concluded that negative balancing market prices provide a market signal for investments in flexibility sources such as flexible generation, demand response, electricity storage, and interconnector capacity.

Interactions between the design of short-term electricity markets in the CWE region and power system flexibility

“…After gate closure of the ID market, the transmission system operator (TSO) is responsible to keep the system balanced. To maintain this balance, the TSO contracts and activates reserve capacity from balance service providers (BSPs) at the procurement side, and settles imbalance positions with balance responsible parties (BRPs) at the settlement side of the balancing market [6,7]. We focus on the Central Western European (CWE) region, which, consistent with common definitions (e.g., [8,9,10]), includes the Belgian, French, German, and Dutch market zones.…”

“…Ref. [7] analyzes the occurrence of negative balancing prices in Belgium (BE), while discussing the functioning of its balancing market. Ref.…”

“…Although country-specific estimates are available in the existing literature, and they depend on many specifics (e.g., notification time, duration, time of the day), they are typically between 2 000 e/MWh and 20 000 e/MWh [45,70]. Because of the large-scale integration of variable RES in the generation mix, conventional power plants currently experience diminishing profitability due to a decreasing number of operating hours and lower electricity prices [7]. The imposed price cap should thus be high enough to allow these conventional power plants to recover their fixed investment cost over a decreased number of operating hours.…”

“…In contrast to price caps, [45] argues there is no incentive to impose price floors in electricity markets. Negative prices occur when conventional generators are willing to pay to generate in order to avoid costly shutdowns or downward ramping, and when renewable generators are willing to pay up to the subsidies they receive in order to generate [3,7]. When set too high, we argue that price floors interfere with the market signal representing the scarcity of downward flexibility, and may result in the arbitrary curtailment of generators during excess generation periods rather than having a pricing mechanism determine who values most being kept on.…”

Energy storage systems: power grid and energy market use cases

“…no prequalification since they are too slow to supply operating reserve or self-discharge is too high for long-term storage system use) and are thus inefficient. Furthermore, individual use cases should be examined and analyzed from the perspective of the particular stakeholders and their roles [23] (see Fig. 5).…”