Electricity cannot be stored. When the sun hits a solar panel, or coal is burnt to turn a turbine and generate an electrical current, this energy is delivered to the distribution grid straight away.
Spot markets are where wholesale electricity producers and consumers go to balance their planned against their actual electricity needs. Those needs become clearer the closer we are to delivery, which is why electricity is often traded the day-ahead, or on the same day as delivery to the grid (intraday). This is particularly true for solar and wind power generators since the weather forecast becomes increasingly accurate from 24 hours out.
If you are a solar power farm what do you do if your energy source – the sun – goes offline? This is what happened last Friday morning, March 20th, in North-Western Europe. A solar eclipse, lasting around 75 minutes, during which the moon at least partially blocked the sun, had a big effect on solar electricity production.
Germany was particularly affected. Today it gets approximately seven-percent of its electricity from solar energy.
The celestial event affected French-German intraday spot prices between 9:00 and 11:00am. If you didn’t know better you might’ve thought the traders had pressed the wrong buttons on their keyboards! Bids as low as -975.00 euros and as high as 950.00 euros were tendered. To give you an idea prices are normally closer to 20.00 or 40.00 euros on the intraday market at the moment.
The final prices did eventually settle at 40.79 euros for 9:00-10:00am, and 66.37 euros for 10:00-11:00am, but varied a lot within the hour. Some 15min intervals settled at a negative price. This is not so unusual and has been seen before.[i] Nevertheless, the spot market demonstrated strong resilience to price volatility during the eclipse.
Negative electricity prices
When wind and solar generators have really good days electricity prices can drop below zero.[ii] The negative price means the market is oversupplied. Everyone produced more electricity than expected and they don’t know what to do with it.
A negative price indicates you would actually pay someone else to use the excess electricity you produced. Why? It might be too late to decrease your production. Gas, coal and nuclear power plants need several hours to warm up (or down). Such facilities do not have simply on/off switches.
Those in charge of maintaining electrical grid stability, Grid Operators, can impose large fines if you exceed what you committed to delivering to the grid. Or if you do not produce as much as promised. Paying someone else to consume your excess electricity is probably a lesser loss than the fines imposed by Grid Operators.
The Grid Operators impose these rules because electrical currents need to be gently “ramped up” and “ramped down.”[iii] They have to plan ahead to ensure electricity flows safely and avoid blackouts.
What’s more consumers are fickle. You wouldn’t have been happy if your computer crashed, or you couldn’t make a cup of tea during your morning break because there wasn’t enough electricity – solar eclipse or not.
No one knew exactly how the solar eclipse would affect production, which explains traders’ erratic behavior. Somewhere else in Europe a more flexible electricity generator – probably a gas-fired power plant – had to quickly ramp up production to replace the eclipsed solar generation and meet consumer demand. Only the most modern and efficient power plants can react this quickly.
A test for Germany
The sudden drop in solar electricity production was an important test of grid stability. If Germany achieves its 2050 goal to produce 60% of its electricity from renewables, then cloudy days will have an affect on the grid as significant as last week’s solar eclipse.
The European Union also plans to increase the share of renewables in electricity production across the continent. In the future enormous swings in solar production could become commonplace.
[ii] Sunny days tend to be windier then average, so solar and wind production peaks can coincide.
[iii] Imagine pulling your hairdryer out of the wall when it’s on full blast. Sparks fly! Multiply that effect by thousands and you can imagine the challenge for Grid Operators.