The price of electricity is largely determined by trading on the various power exchanges. On short-term stock exchanges (day-ahead and intra-day trading transactions), pricing follows very simple market-based criteria. The only thing that distinguishes trade in electrical energy from trade in many other commodities is that supply and demand must be closely coordinated by a quarter of an hour.
Negative electricity prices therefore arise when the Electricity supply exceeds local demand and excess electricity cannot be exported. In such cases, power generators pay to have their electricity purchased. Buyers on the electricity exchange receive money to purchase electricity.
Negative electricity prices arise when the supply of electricity exceeds demand. Particularly when there is a high supply of renewable energy — for example when there is strong wind or intensive solar radiation — the supply of electricity can rise sharply in the short term and exceed demand at these points in time.
Intuitively, all electricity providers who would feed in at times of negative prices would no longer feed electricity into the grid or consumers would explicitly consume more energy during these times. Unfortunately, this is not always the case, because in part Existing incentive regulations or technical reasons Oppose this:
• A conventional power plant often has a minimum output that must be provided in order to maintain the smooth running of the power plant. The complete shutdown would involve costs, wear and other risks.
• Market-independent feed-in tariff: Renewable energy systems that receive a feed-in tariff independent of the market price. In direct marketing, the market premium balances out price fluctuations. This effect was addressed as part of the Solar Peak Act. However, the following still applies to existing systems with ongoing remuneration models: It is not worthwhile switching off even though no power is required in the system.
• Consumers are often inflexible or do not have contracts that are tied to market prices; as a result, they have no incentive to react to falling prices and buy more electricity.
Negative prices are therefore Not just on renewable energy However, a non-demand-based remuneration structure, as previously laid down in the EEG, is now outdated. If negative prices occur, they show that there is a lack of flexibility on the producer and consumer sides and that interconnectors with our neighboring countries may also need to be further expanded.
Since wind and solar power are fed in as a matter of priority due to low marginal costs (Merit order effect), they are displacing conventional power plants. However, they are often unable to react flexibly — for technical or contractual reasons, for example.
Power plants whose electricity is marketed independently of the electricity exchange, for example through supply contracts with minimum delivery quantities, barely react to price signals on the stock exchange. These include, for example, generation plants for self-consumption, CHP plants with heat supply obligations or renewable energy plants that receive a feed-in tariff independent of the market price. In direct marketing, the market premium balances out price fluctuations.
Negative electricity prices have only been allowed on the electricity exchange since 2008. Since then, the number of hours with negative prices has been rising steadily — from 64 hours in 2014 to 457 hours in 2024, which corresponds to around 5% of the year.
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The reason is, among other things, the growing share of volatile producers such as wind and solar energy. The connection between rising negative market prices and renewable energy investments is due, on the one hand, to the lack of controllability of electricity production and, on the other hand, to a lack of price incentives through the feed-in tariff. Electricity is therefore produced regardless of expected consumption when weather conditions permit, and no sufficient incentive effect has been established to justify a shutdown in times of excess electricity from the point of view of the plant operator.
But other factors also influence price developments: Technical restrictions on conventional power plants, a lack of flexibility in the electricity system and regulatory framework play a central role.
A decline in negative price hours is expected from the mid-2020s. The reasons are the expiry of EEG funding for many renewable energy plants, which must therefore react more strongly to price signals, and the shutdown of conventional power plants, which have previously served as price buffers.
Negative electricity prices are the result of a combination of high feed-in of renewable energy, limited storage and grid flexibility, and low demand. They are an expression of a functioning electricity market, but represent an economic challenge, particularly for producers. In the short term, large consumers with direct access to the stock exchange benefit from low prices. For generation plants, on the other hand, negative prices mean a lack of cost coverage and, in some cases, additional payment obligations.
In the long term, a restructuring of the electricity system is necessary to limit negative prices. These include:
• Sector coupling to make better use of surplus energy
• Increasing flexibility on the producer and consumer side
• Dismantling of inflexible conventional power plants
• Expansion of storage facilities and networks
• Improved forecasts for wind and PV feed-in
• Market integration of renewable energies due to expiry of EEG funding
Regulatory measures such as the Solar Peak Act, which excludes remuneration in the event of negative prices, provide targeted incentives to reduce grid congestion. The 4 or 6-hour rule also limits remuneration in the event of longer negative price phases.
If these measures are consistently implemented, a decline in the number of hours with negative electricity prices is expected in the medium term.
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