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Negative electricity prices as a signal for lacking flexibility? On the effects of demand flexibility on electricity prices

Stephanie Halbrügge (FIM Research Center, Project Group Business and Information Systems Engineering of the Fraunhofer FIT, University of Augsburg, Augsburg, Germany)
Paula Heess (FIM Research Center, Project Group Business and Information Systems Engineering of the Fraunhofer FIT, University of Bayreuth, Bayreuth, Germany)
Paul Schott (FIM Research Center, Project Group Business and Information Systems Engineering of the Fraunhofer FIT, University of Bayreuth, Bayreuth, Germany)
Martin Weibelzahl (FIM Research Center, Project Group Business and Information Systems Engineering of the Fraunhofer FIT, University of Bayreuth, Bayreuth, Germany)

International Journal of Energy Sector Management

ISSN: 1750-6220

Article publication date: 4 July 2023

Issue publication date: 14 March 2024

170

Abstract

Purpose

The purpose of this paper is to examine how active consumers, i.e. consumers that can inter-temporally shift their load, can influence electricity prices. As demonstrated in this paper, inter-temporal load shifting can induce negative electricity prices, a recurring phenomenon on power exchanges.

Design/methodology/approach

The paper presents a novel electricity-market model assuming a nodal-pricing, energy-only spot market with active consumers. This study formulates an economic equilibrium problem as a linear program and uses an established six-node case study to compare equilibrium prices of a model with inflexible demand to a model with flexible demand of active consumers.

Findings

This study illustrates that temporal coupling of hourly market clearing through load shifting of active consumers can cause negative electricity prices that are not observed in a model with ceteris paribus inflexible demand. In such situations, where compared to the case of inflexible demand more flexibility is available in the system, negative electricity prices signal lower total system costs. These negative prices result from the use of demand flexibility, which, however, cannot be fully exploited due to limited transmission capacities, respectively, loop-flow restrictions.

Originality/value

Literature indicates that negative electricity prices result from lacking flexibility. The results illustrate that active consumers and their additional flexibility can lead to negative electricity prices in temporally coupled markets, which in general contributes to increased system efficiency as well as increased use of renewable energy sources. These findings extend existing research in both the area of energy flexibility and causes for negative electricity prices. Therefore, policymakers should be aware of such (temporal coupling) effects and, e.g. continue to allow negative electricity prices in the future that can serve as investment signals for active consumers.

Keywords

Acknowledgements

The authors gratefully acknowledge the financial support of the Kopernikus-Project “SynErgie” by the Federal Ministry of Education and Research of Germany (BMBF) and the project supervision by the project management organization Projektträger Jülich (PtJ).

Citation

Halbrügge, S., Heess, P., Schott, P. and Weibelzahl, M. (2024), "Negative electricity prices as a signal for lacking flexibility? On the effects of demand flexibility on electricity prices", International Journal of Energy Sector Management, Vol. 18 No. 3, pp. 596-616. https://doi.org/10.1108/IJESM-12-2021-0005

Publisher

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Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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