Study on the occurrence and impact of negative prices in the day-ahead market
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In the spring of 2023, many hours with deeply negative prices were observed in the day-ahead market, on different occasions in multiple bidding zones of the Core region, up to a minimum of -500€/MWh in the Netherlands. The Netherlands also had the most hours with negative prices and often exported up to near its maximum export position, suggesting that the market coupling algorithm effectively worked to optimise the network constraints.
Negative prices, resulting from an intersection of demand and supply curves at a negative price, seem counterintuitive considering that supply curves should reflect the marginal costs of the different units. Two main reasons can explain this phenomenon: start-up and ramping costs of thermal units and a lack of exposure to prices of some market players on the production side but also on the consumers’ side (effectively blocking the development of demand response). This can be for example due to (retail) contracts or subsidy schemes.
A statistical assessment of the occurrence of negative prices shows that the Netherlands have seen a particularly high number of negative prices in 2023 compared to previous years. Those prices mostly occurred during the middle of the day, when solar panels are producing the most.
The European day-ahead market possesses a mechanism to trigger second auctions in case of extreme negative or positive prices. Due to extreme negative prices in Netherlands, this mechanism was triggered 5 times in 2023. This mechanism, supposed to allow market participants to adapt their bids (for example in case of bidding error) and to reduce the extremeness of the price, lead to unsatisfactory results. Indeed, in an equal number of hours, prices after the second auctions were higher than before the auction, equal to those prices and lower than those prices. Analysis of supply and demand curves in the Netherlands shows that there are very little bids modifications in the second auctions. Second auctions have major impacts on the operations of the day-ahead market and vastly increase risks of decoupling. They reduce the contingency to solve operational problems by 69%.
Consumers, through dynamic contracts for offtake and injection, can have the possibility to be remunerated from their behaviour in hours of negative price. This incentivizes them to play an active role in the electricity system. However, those contracts are currently, for Belgian consumers, primarily accessible in Flanders. Those dynamic contracts also present risks in case of high (positive) prices, especially for consumers with little possibilities to adapt their consumption or production to price signals.