Negative electricity prices in Germany

Negative electricity prices

Generally speaking, power plants earn income by generating and selling electricity, and users need to pay electricity fees for using electricity. However, an opposite phenomenon is increasingly appearing in Europe, namely "negative electricity prices" .

Negative electricity price refers to the negative market settlement price when the supply exceeds the demand in the electricity market. Negative electricity price means that the power generation enterprise has to pay the electricity buyer for every kilowatt-hour of electricity generated. The electricity buyer not only does not need to pay the electricity bill, but also earns income from the power generation enterprise.

So pie really does fall from the sky (it should be electric pie here).

Just recently during the Christmas season, the price of EPEX Spot, a large German power exchange, dropped below 0 Euros, directly to about -50 Euros, which means that power generation companies have to pay 50 Euros per megawatt-hour (1,000 degrees) .

For individual households, it is unlikely to use up 1,000 kWh of electricity in a short period of time, but for many large industrial enterprises, the cost savings are relatively large.

But isn't this forcing everyone to work overtime during the holidays?

If we check further back, we will find that the phenomenon of "negative electricity prices" in Germany is not uncommon and occurs almost every year.

In 2015, negative electricity prices lasted for more than 126 hours. Although the final statistics for 2017 have not yet been released, according to data from Germany's large power exchange EPEX Spot, negative electricity prices occurred more than 100 times in Germany in 2017.

This situation has occurred not only in Germany, but also in several European countries, including Belgium, the United Kingdom, France, the Netherlands and Switzerland, but it occurs most frequently in Germany.

What causes negative electricity prices?

To put it simply, negative electricity prices mean oversupply, and the renewable energy that Germany has vigorously developed in recent years has played a major role in this.

Over the past 20 years, Germany has spent more than $200 billion to develop clean electricity, and this huge investment has paid off. In 2017, the proportion of renewable energy in Germany reached 38% , and coal-fired power plants fell to 49%.

However, these clean electricity sources, such as wind power and solar power, also have their drawbacks. They are highly dependent on the weather . Humans have not yet invented large-capacity energy storage methods, which means that for these renewable energy sources, when it is cloudy or windless, the power generation will drop sharply; when it is sunny or windy, the power generated will be in excess of demand.

Especially during important holidays such as Christmas, people in Western countries take vacations, reunite with their families, factories shut down, and shops close. At this time, the contradiction of oversupply of electricity becomes more prominent.

This is when negative electricity prices appear, mostly during low-load periods during holidays when the weather is sunny or windy.

So why not just shut it down?

This involves the operation of power stations and the load capacity of the power grid.

Among conventional power sources, except for gas-fired units that can be flexibly started and stopped, coal-fired power, nuclear power, etc. are not suitable for frequent start and stop or rapid adjustment of output. Not only is it technically difficult to achieve, but the cost is also very high .

When the output of renewable energy is very large in a certain period of time, enough to meet or even exceed the electricity load, resulting in zero or negative electricity prices in the electricity wholesale market, conventional power sources such as coal-fired power in the system would rather bid at negative electricity prices in the electricity market in order to avoid huge economic losses caused by start-up and shutdown, and use the "paying negative money" method to obtain the right to continue generating electricity.

As the saying goes, "choose the lesser of two evils", as long as the cost of negative electricity prices is lower than the cost of starting and stopping, conventional power sources have no choice.

During the period of negative electricity prices in the German electricity market, lignite power plants must produce at least 42% of their rated power, nuclear power plants must produce at least 49% of their rated power, and only gas power plants can reduce their output to 10% of their rated power.

As for renewable energy, such as solar and wind energy, humans have even less control over it. Moreover, in Germany, renewable energy companies have the advantage of subsidies.

According to the new version of the Renewable Energy Act of Germany issued on August 1, 2014, if the difference between the electricity price subsidy and the actual cost is greater than the absolute value of the negative electricity price, it is still profitable to continue to generate electricity, and obviously the power generator will choose to continue to generate electricity and connect to the grid;

On the contrary, if the difference between the electricity price subsidy and its actual cost is not enough to make up for the negative electricity price, then continuing to generate electricity will cost money, so the power generator will take the initiative to stop generating electricity.

There is also the consideration of power grid stability. In recent years, everyone must have seen the controversy caused by the "Earth Blackout Hour", which is because a sudden decrease or increase in electricity consumption may cause the power grid to collapse.

Power generation companies bid for access to the grid

Under normal electricity market conditions, power generation companies implement bidding for access to the grid, and the price at the intersection of the supply curve and the demand curve is the clearing price, also known as the market wholesale electricity price.

The basic rule for bidding in the electricity market is to prioritize different types of power generation according to their marginal costs (Merit Order), and to rank them from low to high according to marginal costs (marginal cost) when bidding.

The marginal cost of power generation is mainly fuel cost. The fuel cost of renewable energy power generation is zero, and its marginal cost is close to zero, so it is the power source with the highest priority in bidding for access to the grid. The marginal costs of other power sources are nuclear power, coal power, and gas power from low to high, which is also the order in which various power sources bid for access to the grid.

After renewable energy participates in the market bidding, the market wholesale electricity price is greatly reduced . When there is no renewable energy in the electricity market, the first to bid successfully is nuclear power, followed by coal power and gas power. As shown in the following figure:

Finally, even if there is an oversupply of electricity, there is no need to subsidize it. Just like China has had an oversupply of electricity in recent years, the National Development and Reform Commission has not given money to encourage people to use electricity. . . Escape

Do German consumers benefit from “negative electricity prices”?

Definitely, but not as big as you might imagine.

The wholesale cost of German electricity accounts for only about a fifth of the average German household's electricity bill; the rest is taxes, fees for financing renewable energy investments and charges for using the grid.

So, German consumers' electricity bills will definitely be lower, but not that much. And it is worth noting that energy prices have been rising in Germany in recent years due to the issue of renewable energy surcharges.

In 2016, the renewable energy sharing fee was 0.486 yuan/kWh, accounting for 21.2% of the residential electricity price. At the same time, the residential electricity price increased by 60%.

Renewable energy companies’ response

Subsidizing users to use electricity is definitely not something power generation companies are willing to do in the long run.

RWE, Germany's largest power operator, now employs weather forecasters to help predict the ebb and flow of wind power and match the peaks with the company's expected peak demand.

The company is also experimenting with large-scale energy storage systems . In one example, it uses excess electricity to pump large amounts of water into an Austrian mountain lake. When power is running low, the water is released to generate electricity using turbines.

"We are only experiencing minor problems now. Clean energy is our real hope for the future," said Martin Keiner, RWE's commercial director.