German energy prices go negative

[CWatters]

Well for awhile at least. I'm a bit surprised they couldn't export the excess.

The Independent: Germany energy consumers paid to use power over Christmas as supply outstrips demand.

http://google.com/newsstand/s/CBIwn6XOoTc

 

[anorlunda]

It happens. In California, negative prices are happening often. In the province of Ontario Canada, it is happening almost 50% of the time.

There is nothing wrong with negative prices for an hour or two here or there. Perfectly healthy. It is only when it becomes chronic as in Ontario, or maybe California, that is is problematical.

Also in Ontario, retail prices are already sky high and soaring while wholesale prices are driven toward zero. Those are symptoms of a seriously unstable situation likely to blow up soon if not fixed.

South Australia's energy markets are also in serious trouble.

I wrote a draft PF Insights article on this topic, but decided not to publish it because it has far too many words. Try as I might, I can't explain these complexities without using too many words. But I can recommend a 30 minute podcast that did an excellent job of discussing the problems and possible solutions.
https://www.stitcher.com/podcast/the-interchange/e/52255655

 

[PeterF]

As energy efficiency increases and steady 24/7 industrial loads decline as a share of the total load, the peak to trough variation increases.

This means that slow ramping technologies such as coal and nuclear, will more and find themselves in "must run" situations for 2-3 hours at a time, even if there were very few grid connected renewables. This already happens in Queensland at night where there is very little wind (<0.3% of capacity) and clearly at the time no solar, therefore power prices will more and more often go negative.

This is exacerbated by FIT's and PPA's which guarantee prices for renewables. However even if the FITs were all abolished, PPAs won't be because the buyers get lower average prices. Thus as wind and solar capacity increase on sunny or windy days negative pricing might increase but it depends on the generation mix of the dispatchable power. If most of the dispatchable power was a mix of gas turbines, reciprocating gas engines and hydro then there will never be periods of negative price because all conventional generation sources would shut down with any excess wind and solar being curtailed.

Again if large quantities of storage was on the grid to absorb power at low demand times and dispatch it at high demand even if there was no renewable generation, then power prices would always be positive. Then there are two questions, if there is enough storage on the grid to always absorb excess power would that cost more to build and operate than paying large users to take power 2-40 hours per year or having 20-30% more generation capacity than we need on the worst day of the year and just having it some of it idle most of the time or on average having a capacity factor of 50%.

When there were numerous available hydro sites available, hydro was the swing factor, now it may be reciprocating gas (biogas) and batteries but probably mostly demand response .

 

[anorlunda]

This is exacerbated by FIT's and PPA's which guarantee prices for renewables. However even if the FITs were all abolished, PPAs won't be because the buyers get lower average prices.

You did not define FIT or PPA (power purchase agreement?), but they sound like subsidies. I agree with everything you said, but subsidies deserve more explanation.

Renewable generators might receive subsidies in the form of direct payments or tax credits or generous purchase contracts outside of the wholesale energy markets. That makes it possible for them to make a profit even if wholesale prices were permanently zero or negative. That makes them free to submit negative bids all the time.

Also in some parts of the world, wind power peaks in daytime, and other parts wind power peaks at night.

In California where there is a large contribution of renewables, there has been a sharp increase in low price events and a decrease in high price events. A low price event is an hour where prices fall below $10/MWH and a high price event is when prices go above $100/MWH. Some gas peaking generators make their business model based on making their year's profit from a few high price hours. Those people are in trouble because of the changes brought by renewables.

Some people have proposed subsidy payments to nuclear plants to help keep them alive and to help maintain reliability. That would further destabilize the wholesale markets by pushing prices closer to zero. Free markets can not exist with zero prices. That inspires more radical thinkers to begin talking about something other than money to be used to decide how to dispatch power. That certainly qualifies as radical.

I am not saying that I am for or against any of these things. But I do foresee major turmoil in energy markets in the near future. It is more than an engineering problem, it is a business model problem.

 

[OmCheeto]

I wrote a draft PF Insights article on this topic, but decided not to publish it because it has far too many words. Try as I might, I can't explain these complexities without using too many words. But I can recommend a 30 minute podcast that did an excellent job of discussing the problems and possible solutions.
https://www.stitcher.com/podcast/the-interchange/e/52255655

Excellent podcast!

You did not define FIT or PPA (power purchase agreement?), but they sound like subsidies. I agree with everything you said, but subsidies deserve more explanation.

Well, your podcast was filled with things I didn't understand either. Lots of incomprehensible "market" mumbo jumbo.

...merchant business model being dead...
...market regionalization...
...unfettered market...​

I'm guessing "FIT" is "Feed-in Tarrifs"
I found some moderately understandable explanations for that and PPA at energypedia.com:

Feed-in Tariffs (FIT)
Power Purchase Agreement (PPA) - Wind Energy​

Renewable generators might receive subsidies in the form of direct payments or tax credits or generous purchase contracts outside of the wholesale energy markets. That makes it possible for them to make a profit even if wholesale prices were permanently zero or negative. That makes them free to submit negative bids all the time.

I found some discussion about this at the EIA.gov site:

Negative prices in wholesale electricity markets indicate supply inflexibilities
February 23, 2012

Technical and economic factors may drive power plant operators to run generators even when power supply outstrips demand. For example:

• For technical and cost recovery reasons, nuclear plant operators try to continuously operate at full power.
• The operation of hydroelectric units reflects factors outside of power demand, for example, compliance with environmental regulations such as controlling water flow to maintain fish populations.
• Eligible generators can take a 2.2 ¢/kWh or $22/MWh production tax credit (PTC) on electricity sold. This means that some generators may be willing to sell their output for as low as -$22/MWh to continue producing power. Typically, wind generators are the largest such group in any region.
• There are maintenance and fuel-cost penalties when operators shut down and start up large steam turbine (usually fossil-fueled) plants as demand varies over a day or a week. These costs may be avoided if the generator sells at a loss to attract a buyer when demand is low.

bolding mine

Also in some parts of the world, wind power peaks in daytime, and other parts wind power peaks at night.

In California where there is a large contribution of renewables, there has been a sharp increase in low price events and a decrease in high price events. A low price event is an hour where prices fall below $10/MWH and a high price event is when prices go above $100/MWH. Some gas peaking generators make their business model based on making their year's profit from a few high price hours. Those people are in trouble because of the changes brought by renewables.

Some people have proposed subsidy payments to nuclear plants to help keep them alive and to help maintain reliability. That would further destabilize the wholesale markets by pushing prices closer to zero. Free markets can not exist with zero prices. That inspires more radical thinkers to begin talking about something other than money to be used to decide how to dispatch power. That certainly qualifies as radical.

I am not saying that I am for or against any of these things. But I do foresee major turmoil in energy markets in the near future. It is more than an engineering problem, it is a business model problem.

That is kind of weird, that it's a "business model problem". I will have to study this further.
Googling: Negative prices in wholesale electricity markets
yields a plethora of articles.
Yay!
And they are all LONNNNNNNNNNGGG!
Boo!

hmmm... A lot of this still doesn't make sense.
From the first listed link:

Why power prices turn negative
05 Aug 2016 | Kerstine Appunn

They have a graph that kind of explains the negative dip. I can usually understand graphs, but not this one:

On the buyers side, who would say; "You have to pay me to buy electricity"?
On the sellers side, why aren't the FITs and PPAs included?

 

[PeterF]

You did not define FIT or PPA (power purchase agreement?), but they sound like subsidies. I agree with everything you said, but subsidies deserve more explanation.

I was not writing an academic article. Subsidies distort all markets some in the form of tax breaks, some direct subsidies and others by regulation and mostly by uncosted environmental and societal impacts. For example free cooling water to coal and nuclear plants, National expenditure on the military to guard oil and gas import lanes, health costs imposed by pollution and not paid for by the people who cause them etc etc .

The point is demand is more volatile and even without subsidies to any form of generation, price is therefore more volatile. Thus slow response generating assets like coal and nuclear will cause low or negative prices once the rate of change of demand exceeds the safe ramp rate for the generators, subsidy or no subsidy Some Power Purchase Agreements are mandated and others subsidised but increasingly they are based solely on price. a new solar farm or a new wind farm can guarantee X MWh per year for 10-15 years at a lower price than a new coal or gas plant can. The PPA enables both parties to budget on fixed energy prices over the years, with the buyer knowing that a proportion of their energy needs will need to be purchased from dispatchable resources at a higher price.
As I said renewable incentives or in fact gas or coal or nuclear incentives will make the problem worse in the short to medium term. because of the larger unit size, longer lifetimes and longer build cycles for thermal plants it cn be argued that incentives for those plants will embed higher community costs and more volatile returns for investors for much longer than an equivalent subsidy to wind and solar.

Finally there is no such thing as an engineering problem that does not have a business model dimension . Every engineering calculation has (or should have) a dollar sign in the denominator. Good engineering solutions solve the problem at the lowest long term cost in resources and time, money is the convenient measurement