Energy consultant Cornwall Insight has warned that a ‘watershed moment’ occurred earlier this month when wholesale electricity prices in Great Britain fell below zero as a result of extremely high levels of wind generation, much of which was from offshore windfarms
Wind generated more than 16 GW of electricity in Great Britain for the first time on 8 December 2019, providing more than 40% of power. Days later, levels of wind generation rose even higher.
The event highlighted the potential for price cannibalisation, the depressive effect that high levels of intermittent renewables output have on the wholesale power price. Cornwall Insight and others have several times warned about the potential for price cannibalisation.
In September 2019, Cornwall Insight highlighted that the captured wholesale price for wind will continue to fall as more projects come online. It said this could lead to very low wholesale prices at times of modest system demand, noting that, by 2023-24, the cannibalisation effect will have grown and that regular levy payments might still be needed for some projects.
The company has argued that a contract for difference with a floor price could make zero-subsidy projects more attractive to investors and alleviate concerns about the effect of wholesale prices. It believes the value earned from wholesale power is going to become increasingly important for renewables investments as subsidies are removed and the level of intermittent generation grows.
Another consultant, Aurora Energy Research also warned earlier this year about the potential effects of the steep fall in prices in recent contract for difference auctions. “Wind revenues are subject to significant uncertainty,” it said, “and a potentially high build-out of offshore wind spurred on by the government’s decarbonisation agenda could rapidly increase price cannibalisation and reduce merchant returns.”
On 9 December Great Britain experienced a negative day-ahead trading price for the first time, with prices for 03.00 am to 04.00 am UTC delivery on the hourly day-ahead auction dropping to -£2.84/MWh.
Exceptionally high wind generation throughout the weekend of 7-8 December combined with low demand saw outturn day-ahead hourly prices fall to this record low level.
Cornwall Insight wholesale manager James Brabben told OWJ, “Although there have been some negative price occurrences on the within-day wholesale market, this is the first time day-ahead auction prices have ever fallen below zero.
“Wind output levels were high over the weekend of 7-8 December peaking at 16.2 GW on 8 December. This continued over the early hours of 9 December, coupled with the low demand usually seen at this time. It was a perfect storm for prices to drop.”
Mr Brabben said the incident also highlighted the increasingly interconnected nature of coupled European markets. Negative pricing was also observed in the German, Dutch and Belgian day-ahead markets, with German prices reaching a low of -€16.09/MWh between 2.00 am and 3.00 am UTC.
“At the time of negative day-ahead delivery prices, Great Britain was receiving 1.1 GW of power through the Nemo and BritNed interconnectors. At the same time, it was exporting 1.4 GW to France. The UK was effectively acting as a transit country for the flow of continental European power,” said Mr Brabben.
“While this may be heralded as a watershed moment by flexibility providers, who can take the opportunity to be paid to consume electricity, these low prices will be a cause for concern for generators – including offshore windfarms – whose revenues could be significantly affected if this price cannibalisation effect continues.”
When negative pricing occurs, so-called ‘flexibility providers’ get paid, for example, to charge batteries to sell electricity at a higher price at a later date. They include traditional energy companies and aggregator companies such as Limejump, Kiwi Power and Flexitricity.
“With increasing wind penetration across Europe, negative prices now occur even in the depths of winter. This is a trend to watch out for as more intermittent renewables capacity comes online,” Mr Brabben concluded. “It is likely that Great Britain will see a rising number of negative wholesale price occurrences in the future as intermittent renewables capacity rises.”