Negative prices captured headlines in 2024, with a record number of negative price hours experienced across Europe. This has raised concerns for renewable projects, such as those under the Contracts for Difference (CfD) scheme in Great Britain. Since AR4, CfD contracts stipulate that no payments will be made when day-ahead prices fall below zero, posing a potentially significant threat to project revenues.
2024 saw a 58% increase in the number of negative pricing hours on the Intermittent Market Reference Price (IMRP), the volume-weighted average of the N2EX and EPEX day-ahead markets used to calculate CfD payments.
Negative Prices: Time of Day Matters
However, the real impact on CfD-backed projects depends on whether these negative pricing hours align with periods of actual power generation. For example, solar projects are only exposed to negative pricing during daylight hours. Renewable Exchange’s analysis of IMRP data reveals that while only 32% of negative pricing hours in 2023 occurred during daylight, this figure increased to 58% in 2024. Additionally, the total number of daylight hours affected by negative prices rose dramatically from 31 in 2023 to 90 in 2024, a 290% increase.
Solar projects with CfDs were therefore affected significantly more by negative prices in 2024 than previous years. However, it is worth noting that these negative pricing hours account for just 2% of the estimated 4,455 daylight hours in the year.
Financial Impact on CfD Solar Projects
Consider a 49.99MW solar project with a CfD secured in AR4 (2022), with a strike price of £45.99/MWh (in 2012 prices), equivalent to £63.17/MWh in 2024. Assuming a fixed discount to IMRP of £2.25/MWh under the project’s route to market Power Purchase Agreement (PPA), the project would have lost £60,000 due to negative prices in 2024. Whilst this is not insignificant, the project would still have generated over £3 million in power revenues, plus additional income from Renewable Energy Guarantee of Origin (REGO) certificates worth £200,000 at current spot prices. The project would also have received embedded benefits to further mitigate the losses from negative pricing.
Preparing for AR7 and Navigating the CfD Landscape
With 32GW of additional solar capacity required by 2030 to meet the UK government’s ambitious net zero targets according to the National Electricity System Operator (NESO), the CfD scheme will likely remain a critical route to market for many new projects. For solar developers looking to bid into AR7, or those managing existing CfD projects, understanding negative pricing dynamics and optimising all revenue streams is crucial.
Renewable Exchange offers expert services to help you navigate this landscape, including:
- Route to Market and Merchant Nose PPA Tendering
- REGO Optimisation
- Embedded Benefits Calculations
For more information on how we can support your CfD projects, contact our team at [email protected].
Conclusion
While negative pricing is becoming more prevalent, particularly during daylight hours, its overall financial impact on CfD-backed solar projects remains manageable. By staying informed and optimising market strategies, generators can protect project revenues and ensure the long-term success of their portfolios.
