Measuring a Paradox: Zero-negative Electricity Prices

Daniel Davi-Arderius () and Tooraj Jamasb
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Daniel Davi-Arderius: University of Barcelona, Postal: Business and Economy Faculty, Universitat de Barcelona, C/ John M. Keynes, 1-11,, 08034 Barcelona, https://scholar.google.es/citations?user=bTocoMUAAAAJ&hl=es

No 13-2024, Working Papers from Copenhagen Business School, Department of Economics

Abstract: With the increasing participation of renewable sources, prices of energy commodity in the day-ahead markets have been decreasing and in increasing number of hours to zero or even negative prices. However, in hours with prices and charges equal or below zero, end-users may still pay significant prices for the ‘free’ electricity, which presents a paradox. This paper analyses the zero-negative price paradox in a highly decarbonized electricity market. We use Seasonal ARIMA methods with hourly data from the Spanish power system (2021-2024). We find that non-energy system costs increase when day-ahead prices decrease. Thus, customers do not receive efficient price signals to adjust their consumption when more renewables are available. In other words, some benefits of lower prices seem to be traded-off with this “price paradox”. Similar results can be anticipated in other countries with increasing share of renewables. Future studies of welfare impact of electricity prices should consider how to minimize these increasing non-energy costs.

Keywords: Energy-only market; Day-ahead electricity markets; Negative prices; Renewables; Decarbonization; Ancillary services (search for similar items in EconPapers)
JEL-codes: L10 L50 L94 Q41 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2024-08-17
New Economics Papers: this item is included in nep-ene, nep-ind and nep-reg
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Working Paper: Measuring a Paradox: Zero-Negative Electricity Prices (2024)
Working Paper: Measuring a paradox: zero-negative electricity prices (2024)
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