When overproduction of electricity rhymes with negative prices

Still more negative prices

At the end of June, France had experienced 235 hours of electricity production at negative prices, or 5% of production hours, already surpassing the 2023 record (147 hours), according to RTE, the high voltage network manager.

In southern Australia, this has been the case 20% of the time since 2023, notes the International Energy Agency (IEA).

At the origin of the phenomenon: abundant renewable production which causes prices to collapse when demand is weak.

Result, on the "spot" market, where 20% of the market's electricity is exchanged the day before for the next day, the price has fallen to -87 euros/MWh in France in 2024. In Switzerland, prices plummeted to -400 euros/MWh on July 14. These prices are generally observed in summer, at midday, when solar production is in full swing.

The trend has been accelerating for three years, driven by an unexpected drop in demand in Europe, since the Covid epidemic and the war in Ukraine.

Who benefits from these negative prices?

They moderate the final bill, explains Rebecca Aron, market director for Valorem, a pioneering French producer in renewables. But the impact is lagged over time and can go unnoticed among other upward and downward factors. Energy-intensive manufacturers can benefit if they manage to shift their consumption to the most advantageous times.

A negative price is “a signal which warns that there is too much production on the electricity network” and that we must avoid producing, explains Nicolas Goldberg, expert at Colombus Consulting. The electrical system requires, for physical reasons, to be in balance at all times - electricity being more difficult to store than other energies such as gas and oil.

Today, many renewable energy operators stop their machines when a negative price is announced: it takes one minute to stop a photovoltaic park, two to three minutes for a wind turbine. But not all producers do this.

“Renewable energies can be controlled, but today, depending on production contracts, they are not necessarily encouraged to stop,” explains Mathieu Pierzo, director of electricity markets at RTE, which monitors renewable energy in France. balance of the system.

Some producers are in fact remunerated by a price fixed by decree or compensated by the State if their guaranteed price is not reached. As for fossil or nuclear thermal power plants, they can modulate their production but up to a certain limit (technical constraints, restart costs, etc.).

The acceleration of this phenomenon is “extremely problematic” for the sector, according to Mattias Vandenbulcke, of the professional association France Renouvelables. “This allows some to hold a harmful or even deadly discourse which says ‘renewables are useless’”, according to him.

However, if the world wants to remain below 1,5°C of warming compared to the pre-industrial era, it must triple its renewable capacities by 2030, according to the agreement reached in 2023 at COP28.

How to preserve the transition?

“The recurrence of negative prices sends an urgent signal that more flexibility of supply and demand is needed,” the IEA called on Thursday. This means making renewables more manageable and increasing electricity storage capacities.

We must also act on demand by providing financial incentives to shift consumption to the low point of the afternoon, for example to recharge vehicles.

Like fossil and nuclear power plants today, renewable energies will also have to “participate more in balancing the electricity system” in the future, says Mr. Pierzo.

“The real question today is: why is electricity demand not increasing as quickly as the means of production?” adds Mr. Vandenbulcke, deploring in particular “the contradictory signals” sent to consumers by a part of the right in Europe, which would like to reverse the ban in 2035 on the sale of new thermal cars.

According to the IEA, electricity demand in Europe is expected to grow by 1,7% this year, after two years of decline linked to soaring prices.