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Negative pricing will be a ‘big feature’ in net zero transition as UK sees 15 periods in 2020 so far

Image: John Allan.

Image: John Allan.

Negative power pricing is becoming an increasingly common occurrence on the UK energy networks. Already in 2020, there have been 15 half hour periods where the cost of electricity fell into negative figures, according to Drax Electric Insights.

Most recently, Storm Dennis over the weekend of 15-16 February led to negative pricing as strong gusts resulted in large amounts of wind on the network. Prices fell into negative figures twice on the Sunday morning, as wind power made up almost half of the power on the grid.

While this does not break any records, these periods are becoming increasingly common. In a blog, National Grid ESO stated: “Over the weekend some consumers on flexible tariffs were offered energy prices that saw them paid for every unit of electricity they used because the supply of electricity was so high due to all the extra wind.”

Limejump expanded in a blog post on the topic, focusing not just on half hour negative pricing but day ahead. This is also significant as the UK only saw its first instance of negative day ahead pricing in December.

The post explains: "Negative Day Ahead prices are still relatively infrequent in the UK and we tend to see them with extreme wind causing oversupply of power.

“On Sunday, the system was oversupplied due to high wind out-turn (12.5GW) coupled with low demand and low gas prices. Due to this oversupply, the system fell short of the £50 level, capping at £45.00/MWh from 17:30 to 18:30. There was also a marked crash in price at 08:00 am, sending the system down to -£60.00/MWh before recovering back into the positive.”

Negative pricing is particularly pertinent for those with electric vehicles, as often they can be set to charge when the grid is cheapest, therefore taking advantage of the negative pricing.

“Using this excess energy in homes and batteries across the country helps us in our role balancing the grid and avoids energy being wasted. This is a smart electricity system in action,” National Grid ESO continued.

Conor Maher-McWilliams, Kaluza's head of flexibility also highlighted the opportunity such negative periods provide, and the importance of smart technologies to “unlock” this.

“Transitioning to a zero carbon grid and increasing the penetration of intermittent, renewable generation means that conditions on the grid can become more volatile."

Pointing to the two negative wholesale pricing events from Storm Dennis, Maher-McWilliams said "the increased short term volatility means that in order to become more resilient, the grid must become more responsive with flexibility and storage built in from the grid-edge".

“Smart technologies unlock the potential of residential devices to ease pressure on the grid, while responding to events like negative pricing. Suppliers can get paid by using AI to optimise the charging of connected home devices, such as electric cars, and pass benefits back to end customers.”

Certainly the increased wind power on the network has both benefits and challenges. The higher offshore wind capacity is driving an overall reduction in spot prices. In January/February 2019 they were £59.94 and £48.51/MWh respectively. During the same period this year they are £35.23 and £31.54/MWh respectively, a marked drop.

During 2019, there was 2.4GW of additional onshore and offshore wind capacity added in the UK, more than anywhere else in Europe.

But this boom in wind has also meant that constraint management is becoming increasingly challenging and expensive. In the first six weeks of 2020, National Grid made £55.7 million worth of payments for constraint management, almost half of the total of £130 million paid in 2019. This is according to new research by the Renewable Energy Foundation.

With this increasing wind capacity, negative pricing seems set to become increasingly common, with the trend appearing clearly over the last year.

Dr Alastair Martin, founder and chief strategy officer at Flexitricity, said: “Growing renewable generation, constrained networks, marginal system pricing and energy efficiency all push towards more frequent occurrences of negative pricing. Demand growth will occur in flexible technologies, so alongside the growth in negative prices, there will be growth in customers capable of taking advantage of them. The prevalence of negative pricing will be determined by the balance between these two factors.

“Right now, new flexible demand is lagging behind the forcing factors, so negative prices are the result. In the long term, competition will cause negative prices to evolve into cheap prices. For the customer, consistent opportunities to consume at low prices are probably better than sporadic price dives. But negative prices are a great way to kick-start that transition.”

Throughout 2019, the UK saw a number of successive negative pricing milestones. In March UK power prices turned negative for six consecutive hours, which was described as “unprecedented” at the time.

In May, that record was broken when there was negative prices for nine hours. In December, Storm Atiyah saw the record once again broken, with thirteen hours as the UK had more wind power on its grid than ever before.

“With net zero now central to our economic thinking, it’s clear that negative prices will be a big feature of the route from here to there,” finishes Martin.

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