The First 150 days of I-SEM; Part 2 – Negative Prices

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The First 150 days of I-SEM; Part 2

Negative Prices

 

 

Negative power prices are a relatively common feature of power markets across Europe, particularly in regions with high penetrations of renewables. In the first 150 days of I-SEM there have been several occurrences of zero or negative prices in many market timeframes, particularly in the Balancing Market. In this, the second of our Insights in our “150 days of I-SEM” series, we assess the drivers behind negative prices and discuss one of the key questions that arises from these events: Is the presence of negative prices an unwanted feature of the new market or a long overdue market signal for more flexibility?

A QUICK LOOK AT THE NUMBERS

Let’s start by looking at prices across all market timeframes. The table below shows summary price statistics for the first 150 days of I-SEM. Negative Prices Table   There are two striking features relevant to this topic in the data above:

  1. All market timeframes have experienced negative prices.
  2. The Balancing Market is by far the most volatile.

Delving deeper into the Balancing Market, the figures below show the high frequency and magnitude of these events:

  • of negative price 30-minute periods in the BM:      470
  • Proportion of negative price periods in the BM:          7%
  • Average BM Price when below 0 €/MWh:               – 50.55 €/MWh

 

BALANCING MARKET NEGATIVE PRICING

At a high level, negative prices are seen in a ‘Long’ system whereby high levels of supply exceed demand and system operators take actions to either increase demand or reduce generation. I-SEM began on October 1st 2018, the beginning of the winter season in electricity markets. Even in this winter period, where consumer demand is higher, the market has experienced a relatively high frequency of negative prices in comparison to its European counterparts.   In its simplest form, a negative price occurs in the balancing market when the TSO takes an expensive downward action from a participant and that action feeds through to the pricing algorithm. However, to understand it fully we need to determine why that action was taken in the first place:

  • Firstly, the system is usually long in these periods. This can be caused by participants underselling generation or overbuying demand in Ex-Ante timeframes. This could be reflective of forecast error, or in some cases may be down to trading behaviour of some participants.
  • Secondly, since balancing actions are taken on a least cost basis, the system operator would choose an expensive (i.e. negative) bid from a participant for an energy action if other cheaper actions were unavailable or had already been taken.

 

EXAMPLE EVENT: WEEKEND OF 17TH-18TH FEBRUARY 2019

A useful example of such events is the weekend of the 17th and 18th of February. On these dates the East West Interconnector (EWIC) had a planned outage and high wind was forecasted. Day Ahead Market (DAM) prices cleared significantly below 0 €/MWh. While zero prices in DAM have been witnessed throughout I-SEM, the addition of the EWIC outage led to the lowest average daily baseload price in the DAM to date of 29.69 €/MWh and the lowest DA hour block price of -10.29 €/MWh. While this specific price was set by an Assetless Unit, a number of conventional thermal units also bid at a price even lower to ensure that they remained online overnight. The graphs below show how the weekend unfolded:   Summary of the period:

  1. Wind forecast was very high for  Saturday 17th and the first half of Sunday 18th (see the purple line in the first graphic).
  2. A significant amount of wind was dispatched down across this period, particularly on the 17th(see the delta between the yellow and green shaded areas in the first graphic).
  3. The System NIV (negative = ‘Long’) was up to 600 MW oversupplied across many periods (shown in the second graphic).
  4. Day Ahead prices cleared negative as generators sought to ensure that they stayed on overnight and weren’t exposed to potentially very negative balancing prices (see the red line in the third graphic).
  5. For most of the morning of the 17th the imbalance price was set at 0 €/MWh with dispatch-down wind accepted bids feeding through unflagged to the balancing price algorithm (see the blue line in the third graphic).
  6. The following night, imbalance prices dropped as low as -139.44 €/MWh when unflagged expensive actions fed through to the balancing algorithm.
  7. In the period in question the following unit types had negative bids accepted in the balancing market:
  • 1 biomass unit
  • 2 waste to energy units
  • 1 coal unit
  • 1 CHP unit
  • 2 DSU units.

 

NEGATIVE PRICING: A POSITIVE FOR FLEXIBILITY?

Generally, negative price periods occur during periods of high wind penetration when the number of dispatchable generators on the system is very low and those that remain online are near their minimum stable generation limit and need to be kept online for system security reasons. In the old market (SEM), while there were some instances of negative prices, the single ex-post cash-out price and smearing of certain cost components (known as ‘uplift’) across the trading day prevented many trading period prices from dropping below zero. In reality, the limited flexibility of the system in high wind periods always existed and the system dispatch isn’t too dissimilar to pre I-SEM profiles. With the introduction of I-SEM, there is now a real time price signal that exposes the true lack of flexibility during high wind periods. Are these events significant enough to incentivise the development of more flexible means of generation and demand-side participation? In a similar vein, the market eagerly awaits the development of the DS3 market and hopes that this provides an adequate incentive to encourage flexibility from the existing portfolio on the island, and perhaps more pertinently, provides a signal for investment in new, flexible assets to support the market and perhaps mitigate the instance or severity of negative pricing. What is for sure, however, is that negative prices have rapidly become a key feature of the I-SEM thus far. The onus is therefore now on the market, irrespective of the success or otherwise of the DS3 market, to adapt and take a solutions focused attitude to mitigating this risk to their bottom line.   If you would like to discuss how you can mitigate price risk for your asset, please contact the Client Services Team in ElectroRoute to understand your options.