Eurelectric: EU has tools to tackle negative, high power prices simultaneously

Eurelectric proposed a set of measures to the new European Commission to address episodes of ultralow and negative power prices as well as price spikes. The main solutions are in electrification, developing flexibility at scale and designing support schemes that would reflect the realities of the system, it said. The new paper includes recommendations for the prosumers segment.

Hyperfixation on high energy costs has a stranglehold on policymakers in Brussels these days, but negative prices deserve similar attention, according to Eurelectric – Union of the Electricity Industry. The organization acknowledged there is no one-size-fits-all solution but rather a toolbox.

In its latest position paper, Eurelectric argued that the new European Commission can address both high and negative prices in one fell swoop. It proposed accelerated electrification, rollout of storage and flexibility and a more market-reactive design of support schemes for renewables.

Europe witnessed an unprecedented increase in annual hours of negative prices in 2024, reaching 1,031 by the end of August. It compares to 821 all last year and just 154 hours in 2018.

Negative prices incentivize demand, investments in flexibility, but disturb business case for power plant projects

Sustained occurrence of negative prices can have both positive and negative impacts on investment in the energy sector at the same time, the report explains. On the one hand, high renewable electricity generation reduces prices for consumers. Negative prices are also an incentive to develop storage, flexibility options and more demand to harness the low operating costs.

However, in time the business case for new investments in renewables becomes more unpredictable.

The drivers of the phenomenon differ across European markets, but one common key reason is the combination of weather conditions resulting in high electricity supply at times of low demand like holidays. Among other factors are the local conditions in a particular country.

Electrification is favorable for energy efficiency, ultimately lowering overall energy costs

The three proposed ways to address negative prices would simultaneously affect the market mechanism that leads to high prices, according to Eurelectric.

An electrification action plan is needed to promote demand that can be served by abundant renewable electricity and to improve energy efficiency and help customers lower their overall energy demand and therefore, costs, the paper reads.

Responsive price signals would better match supply with demand, creating a favorable investment environment for cheaper clean and renewable energy capacity

“We need to develop flexibility sources at scale and for varying timeframes to give a shelf life to abundant but variable renewable electricity generation, limiting negative prices by matching supply to demand, and reducing high energy prices by enabling cheaper clean and renewable generation to serve more of consumer demand. We need an appropriate design of support schemes that reflect realities of the system. This means responsive price signals for a better matching of supply and demand, creating a favourable investment environment for cheaper clean and renewable energy capacity additions,” the organization pointed out.

A market framework that encourages investment in flexible resources like demand-side response and storage is crucial for balancing supply and demand, particularly in the face of increasing renewables penetration and cross-border congestion, Eurelectric said.

Prosumers lack motivation to adjust their output, demand

The factors behind ultralow and negative power prices include a high penetration of non-market-reactive prosumers.

Households with photovoltaic systems may inject energy into the grid regardless of market prices due to net metering, the absence of wholesale price passthrough or control by the system operator, or lack of price awareness, the authors argued. The lack of response of a significant share of generation assets to market price signals can lead to negative prices, they said.

Prosumers are often not charged for the grid issues their surplus energy creates

The issue is particularly prevalent in Romania, and in Germany, where approximately two thirds of new solar capacity, installed since the beginning of the year, consists of systems up to 100 kW with a guaranteed fixed feed-in tariff for 20 years, data showed. Without adequate incentives to curtail energy injection or to increase local consumption, excess generation can exacerbate local surpluses.

Prosumers are often not charged for the grid issues their surplus energy creates, which reduces their motivation to adjust their output or demand, Eurelectric stressed. It highlighted the need for smart infrastructure and tariffs. Real-time data enables informed decisions about consumption and production, the organization noted.