UK day-ahead price negative for first time

The UK day-ahead auction has cleared below zero for the first time.

The auction delivered at minus £10.13/MWh for delivery tomorrow, down from £11.58/MWh for Friday delivery, Nordpool data show.

The price was negative for 17 hours, falling to as low as minus £38.80/MWh at 15:00-16:00 local time.

Prices had gone below zero for certain hours before, but this is the first time the average price for the day was negative.

The first negative hourly prices in the day-ahead auction were seen in December last year , when strong levels of wind pushed the price below zero for one overnight hour. More were seen on 11 February this year.

And negative hourly prices have become more frequent in the past two months as the Covid-19 pandemic has dramatically reduced power demand — negative hourly prices were already seen on six days since 5 April.

The price for tomorrow went deeply negative on a combination of both factors. Demand is expected to be exceptionally low over this bank holiday weekend, while wind power is forecast to be exceptionally high.

National Grid ESO is forecasting metred wind at an average of 13.5GW tomorrow, up from 11.9GW forecast for today. This would be the highest on record, from the previous high of 12.7GW on 10 February. Another 3GW of embedded wind output is forecast.

Actual wind output will likely be much lower, as the ESO will take action to curtail wind in order to balance supply and demand. It expects to need 6GW of biomass and combined-cycle gas turbines to run overnight and 8.5GW during the day in order to maintain inertia this weekend, while nuclear output will likely be about 5.8GW. It forecasts that system demand will peak at just 23.4GW tomorrow evening.

Negative prices could become increasingly common even after the Covid-19 pandemic subsides, as renewable capacity continues to rise. Offshore wind capacity is set to double to 20GW by 2025, while the government says it is targeting 40GW by 2030.

Since 2016, contracts for difference have contained a clause stating that generators will receive no top-up payments if the day-ahead price goes below zero for six consecutive hours in an attempt to discourage renewables from running during times of oversupply.

But similar clauses exist in the German renewables support scheme, and negative prices are also becoming increasingly common in the German market.

Consultancy Aurora Energy Research has found that "in the face of inaccurate day-ahead weather forecasts and high subsidy levels, curtailing and losing subsidies with certainty is riskier for operators than having to accept negative prices in case the six-hour-rule applies".

By Killian Staines

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