Who has ever seen a baker not selling off the bread he makes every day, but paying to have it taken from him? This absurd situation has become common on the electricity market, where we increasingly see producers selling their kilowatt hours at a negative price. A phenomenon which has grown in Europe over the past two years and which has become worrying.
In France, indicates an analysis by the Energy Regulatory Commission (CRE) published at the end of November, the number of hours where the market price of electricity was below zero reached 147 hours in 2023 , then 235 hours in the first half of 2024 alone, so until 2022, it had never exceeded 102 hours. “We should be familiar with the 400 hours in 2024 »indicates Michel Gioria, general delegate of France Renewables. A year with 8,760 hours, that’s 4.5% of the time. Even if the annual average market price remains very positive and generally profitable, the subject is, from now on, “far from being anecdotal”.
This situation is linked to the way the European electricity market operates. “The market price corresponds to the marginal cost of the last power station called by the network”, recalls energy economist Jacques Percebois, professor emeritus at the University of Montpellier. When electricity consumption increases, it is the power plants that can provide an additional kWh at the best price that are called upon first, starting with solar and wind installations whose marginal cost is zero (wind and sun are free) . Conversely, when demand decreases, the production capacities with the highest marginal cost, coal and gas power plants, are the first to disappear.
The electricity supply must be adjusted at any time until further notice t on demand (lack of storage capacity), negative market prices appear during periods of the day when supply is overabundant compared to demand but where operators, after having reduced their production, prefer to be able to continue to inject a little electricity on the network even if you have to pay for it. In fact, it would be even more expensive for them to shut down their installation completely and restart it later. This is particularly the case for nuclear power plants.
Causes multiples
These moments when supply saturates demand are essentially the early afternoons in spring and summer when the photovoltaic panels produce their electricity at full capacity (while it is in the evening and in winter that we want to push its radiator). A situation that is even more marked at the weekend when a good part of France slows down.
“There is a correlation between negative prices and solar production. But that doesn’t mean that negative prices are because of solar! » exclaims Alexandre Roesch, general delegate of the Renewable Energies Union (SER), denouncing the exploitation of this problem by the enemies of renewable energies, while its causes must be sought elsewhere. They are multiple.
The main explanation, all observers point out, is the imbalance between supply and demand for carbon-free electricity.
“The decarbonization of our economy requires the electrification of uses. We have developed the supply with renewable energies, but the problem is that demand is not increasing at the expected rate. We see it in transport or in industry”notes Jacques Percebois.
On the contrary, emphasizes Alexandre Roesch, “according to RTE’s balance sheet [le réseau de transport d’électricité] for 2023, the monthly averages of electricity demand for 2022-2023 are 5 lower % to 9 % compared to the corresponding months in 2014-2019. At the same time, renewable capacities have increased and nuclear production, which had fallen in 2022 due to the problem of stress corrosion, has returned to levels which are close to historical levels.
It’s not the fault of solar power, but of an exit from fossils that is not going fast enough
Clearly, it is not the fault of solar power, but of an exit from fossils which is not going fast enough. The cause is insufficient public and private investment in goods such as electric cars or blast furnaces running on green hydrogen, against a backdrop of sluggish growth and strong budgetary constraints.
Changing off-peak hours
“It is absolutely necessary that electricity consumption starts to rise again, this is the first subject, Michel Gioria also insists. More this recovery will not occur before 2027 or 2028.” In fact, electricity futures markets currently anticipate a drop in prices over the next three years – they should fall to around €65/MWh compared to €97/MWh on average in 2023, which is not very good sign from the point of view of the transition.
While waiting for the decline in fossil fuels to accelerate and for the consumption of carbon-free electricity to take off, the exit from negative prices requires a better day-to-day adjustment of supply and demand. What the progression of variable energies – but essential to accelerate the transition – which are solar and wind, makes it necessary in any case.
Shifting the demand curve by encouraging more consumption when electricity is abundant (and cheap) will be easier in the future with batteries and “smart grids”. Regarding the short term, the discussion between the stakeholders concerns an evolution of the tariff range for off-peak hours, since with the rise of solar power, it is no longer only at night that demand is low compared to capacities, but also in the early afternoon. A change that could become effective in the summer of 2025.
For the administration, the multiplication of negative hours increases the cost of public support for renewable energies by several million euros
Will this device be effective? In any case, it will not allow us to face the negative times which will reappear next spring. At this time, the only actionable lever would be to reduce solar and wind production in these episodes (knowing that thermal means have already been erased and that nuclear power plants have already reduced their injections into the network). And, more precisely, to oblige installations under a purchase obligation regime, whose production is paid at a fixed price regardless of the market price, to stop producing in exchange for compensation up to their guaranteed purchase price .
According to the protagonists, the negotiations between operators and authorities are moving in the right direction. And that makes sense, because no one has any interest in the situation continuing. For the administration, the multiplication of negative hours increases the cost of public support for renewable energies, even if we are only talking here about a few tens of millions of euros. For investors, even if they benefit from support, this calls into question the economic balance of projects and creates uncertainty. And for everyone, this tarnishes the image of renewables and gives a foothold to their adversaries, even if it is on the basis of false arguments.
The risk, fear some actors, would however be to concentrate all attention on the measures necessary to better adjust supply and demand at the moment twhile negative electricity prices are fundamentally an expression of underinvestment in the decarbonization of energy demand. We will not cure the disease by only eliminating the symptom.
