Greater volumes of renewable energy, changing weather conditions and decreased demand have meant negative pricing is become more common in UK energy markets.
This is according to Dr Alastair Martin, founder and chief strategy officer at Flexitricity, who wrote a Guest Blog published on our sister site, Energy-Storage News yesterday (3 October). Martin also argues that dedicated energy assets with 24-hour availability, such as most battery energy storage systems (BESS), are best placed to generate the highest revenues from addressing this issue.
Negative pricing occurs during periods of low demand and/or increased volumes of renewable generation, which forces grid operators to dial back renewable generators. As solar and wind farms usually have an agreed price for their output, asking generators to stop producing energy leaves this cost to be covered, driving energy prices below zero.
According to Martin, negative pricing is more common in the UK’s Day Ahead and Same Day markets than other markets in Europe; for example, 2 July saw Day Ahead prices drop to £-75.7/MWh.
“Businesses with the ability to adjust when they consume energy, or store it using batteries or heat buffers, have a lot to gain from negative pricing events. There are several methods that can be used to turn this flexibility into revenue, including accessing wholesale markets and the Balancing Mechanism directly, or using pass-through supply agreements to access cash-out prices,” wrote Martin.
“Electricity markets span several timeframes, ranging from years ahead of consumption, to hours ahead, and finally to real time. Because negative pricing is caused by the combination of inflexibility, weather and network issues, negative pricing most commonly occurs in the markets with shorter timeframes such as day-ahead auctions, intraday markets and the Balancing Mechanism.”
A recently-published report by the energy analytics and consultancy firm LCP Delta, urged BESS investors to consider more “sophisticated strategies” to increase revenues, following a 71% decline in average profits for Britain’s battery storage market.
Although the decrease follows exceptional revenues highs experienced by the battery industry in 2021 and 2022, LCP Delta suggested investors rely less on frequency response markets and more on strategies such as revenue stacking from the balancing market.
Martin used the 50MW West Gourdie BESS as a case study for the effective use of batteries as a flexible resource. According to Martin, West Gourdie, owned by Foresight Group and operated by Flexitricity, was a top revenue earner on 2 July this year.
Referencing data from Modo Energy, Martin noted:
- 83% of West Gourdie’s revenues came from the ancillary service Dynamic Containment, mostly the low-frequency service, where prices averaged £13/MW/hr.
- West Gourdie was able to stack trading actions to take advantage of negative prices. The system allowed for charging up during negative prices and discharge in the evening. This accounted for 17% of revenues.
- The system cycled approximately 0.9 times on the day.
Martin also called electric vehicles (EVs) “batteries on wheels” that can use smart charging to help balance the grid.
A number of projects are currently under way to develop vehicle-to-grid (V2G) technology and services, including a new trial by Octopus Energy for drivers to use their EVs to balance the grid whilst charging as part of the National Grid ESO-led trial of the Power Responsive mechanism.
“Negative pricing events are becoming more common, driven by the growth in variable renewable energy generation and the technical limits of nuclear energy – and is a consequence of inflexibility in the grid, on both the demand and production side,” said Martin in conclusion.
“This does not mean that negative pricing is an anomaly. As the grid transforms, the depth and duration of negative price events will change. Negative pricing is a market signal to invest in the flexibility that makes best use of the energy resources that are compliant with net zero.
“A combination of battery assets, smart electric vehicle charging and flexible business energy consumption should lead to lower energy prices overall.”
Readers can view Dr Alastair Martin’s blog for Energy-Storage News, ‘Negative energy prices: Why batteries are a flexible resource to mitigate impacts across Europe’, here.