Negative Electricity Prices as a Signal for Lacking Flexibility? On the Effects of Demand Flexibility on Electricity Prices

Title data

Halbrügge, Stephanie ; Heeß, Paula ; Schott, Paul ; Weibelzahl, Martin:
Negative Electricity Prices as a Signal for Lacking Flexibility? On the Effects of Demand Flexibility on Electricity Prices.
In: International Journal of Energy Sector Management. Vol. 18 (2024) Issue 3 . - pp. 596-616.
ISSN 1750-6239
DOI: https://doi.org/10.1108/IJESM-12-2021-0005

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Abstract in another language

In recent years, negative electricity prices have become a recurring phenomenon on power exchanges. Typically, negative electricity prices arise in situations in which more electricity is offered at negative price bids than electricity is demanded. Negative prices may also stem from limited transmission flexibility in the form of loop-flow restrictions. While electricity demand was traditionally inelastic, we observe an increasingly active demand side with consumers as new suppliers of flexibility. We present a novel electricity-market model assuming a Day-Ahead, energy-only spot market with load shifting of active consumers. We illustrate that temporal coupling of hourly market clearing through load shifting of consumers can cause negative electricity prices that are not observed in a model with ceteris paribus inelastic demand. In such situations, where more flexibility is available, compared to the case of inelastic demand, negative electricity prices signal lower total system costs resulting from the use of demand flexibility, which, however, cannot be fully exploited due to loop-flow restrictions. Our results highlight that active consumers may change current price patterns, while also contributing to increased use of renewable energy sources. Policymakers should be aware of these effects and, e.g., continue to allow negative electricity prices in the future.