Negative energy prices – what do they mean for the renewable energy market and consumers?

What are negative energy prices?

Negative energy prices refer to a situation where energy producers are willing to pay consumers to take the energy off their hands. This stems from the specific nature of the electricity market, where supply and demand must be continuously balanced. In Poland, this happened on May 1, 2024, when negative electricity prices were recorded on the Polish Power Exchange (TGE) for seven hours, with rates ranging from -5.57 PLN/MWh to -123.26 PLN/MWh.

This phenomenon is not unique to Poland. Countries like Germany and Denmark have been experiencing negative energy prices for several years. However, it is new to the Polish market and could signal significant changes in how the entire energy sector operates.

Causes of negative energy prices

Several factors contributed to the occurrence of negative energy prices in Poland:

1. Overproduction of renewable energy – On the day of the negative prices, Polish photovoltaic systems were operating at nearly 6.5 GW, while wind farms were generating 4 GW, with a total demand of 17 GW.
2. Low energy demand – The phenomenon occurred on a Sunday, a day when energy demand is traditionally lower.
3. Import of cheap energy from neighboring markets – Negative energy prices were also observed in Austria, Germany, and Sweden, impacting the Polish market through energy imports.
4. Low flexibility of conventional energy sources – Conventional power plants often struggle to adjust production quickly enough to meet changing demand.

Impact of negative prices on various market participants

Individual consumers

For most consumers, negative energy prices do not have a direct impact on their bills. Retail prices are set based on long-term contracts and tariffs. However, in the future, this could lead to the introduction of dynamic tariffs that would allow consumers to benefit from periods of low prices.

Prosumers

For prosumers participating in a net-billing system, negative energy prices can have more significant implications. In this system, surplus energy is settled based on its market value. While this allows prosumers to reduce their energy bills, during periods of negative prices, this value could be minimal or even negative.

CHP enterprises

For Combined Heat and Power (CHP) plants, negative prices impact annual financial reports. Under the Act on Promoting Electricity from High-Efficiency Cogeneration, CHP units are not eligible for support for electricity generated during periods of negative prices.

Energy producers

For energy producers, negative energy prices mean a need to adjust production strategies. This could lead to increased investment in flexible energy storage systems and technologies that allow for quick adjustments to production based on demand.

Consequences of negative prices for the development of the renewable energy market

The emergence of negative energy prices could have far-reaching consequences for the development of the renewable energy (RES) market.

First, it will necessitate greater flexibility in the energy system and require infrastructure to adapt to more variable energy production from RES. Second, this phenomenon highlights the need for energy storage technologies to effectively store surplus production.

Negative prices may also impact the profitability of renewable energy investments. Although they may seem unfavorable for investors at first glance, in the long run, they could stimulate innovation and increase efficiency in the sector. As a result, governments and regulators may need to adjust energy policies to better manage situations of energy overproduction.

The future of the energy market in the context of negative prices

Although currently rare in Poland, negative energy prices could become more common in the future. We can expect the following changes:

• Increased frequency of negative prices, especially during periods of low demand and high RES production.
• Development of smart grids and demand management systems to help better balance energy production and consumption.
• Greater role for micro-installations and prosumer energy in stabilizing local power grids.
• New challenges and opportunities for companies in the RES sector to optimize production and energy management.

The appearance of negative energy prices in Poland signals significant shifts in the energy market. This phenomenon brings certain challenges but also opens new opportunities for the development of the renewable energy sector and innovations in energy management. Consumers and prosumers should monitor these changes, as they may lead to more favorable energy billing options in the future.

Negative energy prices are a symptom of the ongoing energy transition towards a more sustainable and flexible system. As these changes unfold, it will be essential for all market participants to adapt. For companies like Nomad Electric, these shifts present not only new challenges but also significant opportunities for growth and innovation in their service offerings.