Negative Prices and PPAs: Which opportunities for consumers and producers?

Electricity Price Formation

Spot electricity prices are determined by three factors: supply (production), demand (consumption), and exports/imports, which depend on cross-border interconnections and their availability. On the Day-Ahead spot market, the electricity price is set daily for each hour of the following day. When supply exceeds demand during a specific hour, the price for that hour becomes negative. This means that producers must pay to inject electricity into the grid, while consumers are paid to consume it. The price signal provided by the Day-Ahead spot market enables market participants to adjust, to a given extent, their production and consumption, ensuring a balanced supply-demand equilibrium.

Historically, this adjustment of production to match demand has been carried out by dispatchable generation assets, which can respond more or less quickly to fluctuations in consumption. Nuclear power plants, forming the base of the supply in France, are relatively inflexible compared to gas-fired power plants. Renewable energy assets like wind and solar are not dispatchable because their production is intermittent: it depends on wind and solar irradiation and not on power consumption. However, they are highly flexible as their production can be curtailed within moments.

What drives negative prices?

Previously limited to periods of low consumption, such as holidays, occurrences of negative prices have surged in recent years, with a sharp increase in 2024 (147 negative prices in 2023 versus 352 in 2024 as of 21/11/2024). The level of negative prices has also slightly increased: -€6.9/MWh in 2023 versus -€10.2/MWh in 2024.

This trend is due to evolutions in the supply-demand balance in 2024:

• Abundant supply: Nuclear availability and production have returned to high levels (contrary to 2022–2023), hydropower reservoirs are at high levels, and renewable capacity continues to grow.
• Stable electricity demand.
• Cross-border interconnection capacity allowing part of the supply to be exported: 43.4 TWh in 2023 and 90 TWh expected in 2024.

This significant increase in supply, combined with stable demand, is driving down spot prices in 2024, with more frequent negative spot prices. In the mid-term, it is likely that these episodes will continue, as the supply-demand balance described above is expected to persist.

Renewable Assets Curtailed During Negative Spot Prices?

Wind and solar generation assets can technically reduce their output. However, 40% of wind assets and 80% of solar assets are under feed-in tariffs and are not, as of today, curtailed during negative spot price periods. Assets under a feed-in premium scheme are curtailed.

What About Corporate PPAs?

Assets benefiting from Corporate PPAs signed before 2023 generally do not include provisions allowing for curtailments during negative spot prices, whereas more recent CPPA incorporate clauses allowing this, under varying conditions and modalities, depending on the specific CPPAs.

There are indeed various ways to turn negative spot price episodes into opportunities for consumers and producers under CPPAs. For instance, why buy electricity at a positive price when it can be purchased at a negative price (i.e., being paid to consume), while maintaining, at minimum, the producer’s revenue?

To leverage on these opportunities, CPPAs and supply-aggregation contracts must be adapted to:

1. Allowing for the curtailment of assets during negative spot price periods,
2. Define specific conditions and modalities for each CPPA and supply-aggregation contract to enable all parties to benefit from these opportunities while maintaining economic balance and an acceptable risk allocation for all stakeholders.

We invite you to contact our PPA Advisory services team for more information: contact@greensolver.net

Written by the Power & PPA team , Alexandre Soroko, Delphine Strunski, Charlotte Pierini, Maïmouna Bâ