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. 17 (2023) .
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.