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Germany's negative price rules bring negative consequences

By District Energy posted 05-01-2020 10:20


Wind Power Monthly


Germany's negative electricity price rules have caused an estimated €50 million in losses for offshore wind projects in February 2020 alone.

In particular, the "six-hour rule" is a problem, says Germany's federation of offshore wind farm operators, the BWO.

The uncertainties the rule creates have to be priced into offshore and onshore wind bids at support auctions, so consumers pay higher prices for the whole 20-year support period.

The "six-hour rule" stops support payments to wind farm operators if wholesale day-ahead electricity prices go negative for more than six hours, backdated to the first hour with a minus price.

The aim is to ensure there is no incentive to generate electricity when supply exceeds demand and prices go into the red. But the measure isn't working and needs to be corrected, said the BWO.

Stubborn generators

Periods of negative pricing are happening more frequently. There were 211 hours with negative prices, averaging minus €17.27/MWh, in 2019 — up from 134 hours at an average of €13.73/MWh a year earlier.

In Q1 2020 alone, there have already been 128 hours with prices in the red.

Prices often drop below zero when there is excess wind and solar generation in the market, but fossil and nuclear power plants fail to throttle their output even though their generation costs are higher and renewables have priority grid access.

This may be because a complete shutdown of conventional generation plants followed by a restart would cost operators more than continuing production at negative prices, or continued operation is required to supply district heating.

Similarly, ceasing production would mean loss of other privileges for conventional power plant operators, such as waived or reduced network usage or renewable energy levy charges. Industries with their own fossil power plants keep on generating regardless of the market.

Without more energy system flexibility in both supply and demand, Germany's energy regulator, the Bundesnetzagentur (BNetzA) expects the number of annual hours with negative prices to continue increasing.

Market rules

Another problem is that the six-hour period refers to the day-ahead prices – the day before delivery – yet the electricity can often be sold intraday – on the day of delivery – at positive prices.

The electricity traders selling the electricity earn revenue but the wind farms generating the electricity go empty-handed.

At the same time, market data needed by electricity traders to deal with the six-hour rule is unreliable, notes the BWO.

Failure to report market data, or errors when doing so, can have a substantial impact. On 7 June 2019 an IT error at the Epex Spot trading platform meant Germany was split from other markets and resulted in a 19-hour period of negative prices, the longest to date.

Alternative arrangements

The BWO called for the rules to be changed.

Options include scrapping the six-hour rule, or extending the support payment period by the hours in which support is reduced to zero, as in Denmark and the Netherlands, so it can become an eight-hour or ten-hour rule.

Or a quota could be set for the number of hours in which support is paid, the BWO recommended.

In France, renewable operators get compensation if the number of hours with negative prices per year exceeds a certain threshold, as well as adjustments to taxes and levies so conventional power stations are discouraged from continuing to operate when prices slide below €0/MWh.

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