Utilities Pay Customers to Take Power After Virus Guts Demand

(Bloomberg) -- Power traders are predicting a volatile summer in Europe, with prices tumbling below zero more frequently as the coronavirus upends longstanding energy forecasting models.

With all of Europe’s major markets in quarantine and electricity consumption about 20% lower than usual, gauging demand in the once-sleepy summer season is now more challenging than ever. Lockdowns to halt Covid-19 have left weekday power consumption looking more like a weekend. Negative prices for power appeared in France, Germany, the Nordic region and Belgium over the Easter weekend.

Utilities Pay Customers to Take Power After Virus Guts Demand

“Market swings mean more opportunities for us,” said Simon Rathjen, founder and director of intraday markets at MFT Energy A/S. With negative prices, “the challenge is to forecast them. We’re expecting more negative prices than usual over the next month.”

What are negative prices?
  • Power prices first fell below zero in Germany, Europe’s biggest power market, in December 2012.
  • Prices turn negative at times of the day when there’s more supply than demand, meaning either some generation has to stop or consumers need to switch on. Sometimes it’s cheaper to pay consumers to use power than it is to shut down and restart a power plant.
  • Negative prices have been occurring more often in short-term markets, such as those for 15-minute, 30-minute or hourly periods. That’s because of an unprecedented increase of supplies from wind and solar farms. Electricity from renewables has priority over other forms of generation when feeding into the grid.

Negative prices are common in Germany and the Nordic region during some hours on holidays or weekends, when renewable output outstrips demand. But the widespread shutdown of factories to stop the spread of the coronavirus is accentuating the phenomena.

Germany has seen the most instances of negative prices, which typically only occur at a few hours of the day. In auctions of power for delivery in 15-minute intraday periods on the Epex Spot SE exchange, rates fell below zero 773 times in the first quarter, a 78% jump from the same period a year earlier. Those negative prices were about 23% lower on average than a year ago, the exchange data show.

In Europe’s major power markets the four-day Easter weekend demand was the lowest for at least five years, according to energy consultants Wood Mackenzie Ltd. In Germany, intraday auction prices plunged to as low as minus 123 euros a megawatt-hour in one 15-minute period for April 13. That compares with an average day-ahead price of 25.32 euros at an auction held Wednesday.

“Renewables forecasts are always extremely relevant,” said Anders Kring, head of intraday power trading at Danske Commodities A/S. In Sweden, “the 3 Ws -- wet, warm and windy, and with coronavirus on top -- makes for a perfect storm” for negative prices

Utilities Pay Customers to Take Power After Virus Guts Demand

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In Britain, Octopus Energy Ltd. has an electricity tariff that allows consumers to take advantage of negative prices and get paid to charge electric vehicles or use smart appliances. Prices below zero mean that generators will have to pay users to take power off the grid.

Sky High

Price swings to the upside are possible, too. Low demand can create crunch points when solar generation drops off at a time when consumption suddenly climbs and there’s not enough plants ready to start up.

The so-called balancing market is where power generation can profit from being available at short notice. That’s how how grids across Europe will manage low demand.

The prospect of reduced demand for months to come has lowered long-term prices and meant that some power stations have been taken out of the market, including two reactors at Vattenfall AB’s Ringhals nuclear plant in Sweden. Other operators could take the same view and mothball generators or extend maintenance leaving fewer units available.

Predicting the public’s behavior during lockdown has become more difficult. People aren’t doing the same things at the same time anymore, and historical demand models need to catch up.

“We haven’t seen anything like this before,” MFT Energy’s Rathjen said. “We have adapted to low levels, we now need to adapt to a slow recovery.

©2020 Bloomberg L.P.

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