Negative power prices are making headlines across Europe. They’re becoming increasingly prevalent, with periods of negative wholesale prices across European power markets from January to August increasing by 159% in 2024 versus the previous year (Financial Times).
This news has caused concern amongst renewable generators and lenders for projects that are on the Contracts for Difference (CfD) scheme in Great Britain. From AR4 onwards, the CfD contract specifies that payments are not made for periods when the day-ahead price is negative. This means that negative pricing poses a potential threat to revenues for projects that possess a CfD.
However, it is important to assess the correlation between the hours of negative pricing and the hours of generation. Renewable Exchange has carried out analysis assessing this for solar projects, and found that there is a much lower occurrence of negative pricing hours during the hours of solar generation.
In order to identify this, data for day-ahead pricing was analysed to assess how many of the negative pricing periods occurred during the hours of daylight. These hours were varied by month to create a representative assessment. The outcome was that only 38% of the negative pricing periods from 2020-2023 occurred during daylight hours.
The N2EX market is where the majority of UK day-ahead power is traded, and it is therefore the dominant component of the IMRP – the index in relation to which CfD payments are calculated. In 2023, there were 107 hours of negative pricing on N2EX. However, only 35 of these occurred during daylight hours – 33% of the total. Interestingly, 31 of the 35 periods occurred within the month of July alone. The percentage was even lower in 2022, where only 14% of the 29 negative pricing periods occurred during daylight hours.
Negative prices are certainly a subject that merits close attention. However, as this analysis shows the outlook for solar projects may be brighter than it seems.
If you’re a generator with projects that have successfully secured a CfD, get in touch with our experts to discuss our services for optimising route to market and merchant nose PPAs: [email protected].
