What are negative prices and how do they occur?
Negative prices are a price signal on the power wholesale market that occurs when a high inflexible power generation meets low demand. Inflexible power sources can’t be shut down and restarted in a quick and cost-efficient manner. Renewables do count in, as they are dependent from external factors (wind, sun).
On wholesale markets, electricity prices are driven by supply and demand which in turn are determined by several factors such as climate conditions, seasonal factors or consumption behavior. This helps to maintain the required balance. Prices fall with low demand, signaling generators to reduce output to avoid overloading the grid. On the French and German/Austrian Day-Ahead market and all Intraday markets of EPEX SPOT, they can thus fall below zero.
In some circumstances, one may rely on these negative prices to deal with a sudden oversupply of energy and to send appropriate market signals to reduce production. In this case, producers have to compare their costs of stopping and restarting their plants with the costs of selling their energy at a negative price (which means paying instead of receiving money). If their production means are flexible enough, they will stop producing for this period of time which will prevent or buffer the negative price on the wholesale market and ease the tension on the grid.
Are negative prices a theoretical concept or gets the buyer really paid for buying electricity?
Negative prices are not a theoretical concept. Buyers are actually getting money and electricity from sellers. However, you need to keep in mind that if a producer is willing to accept negative prices, this means it is less expensive for him to keep their power plants online than to shut them down and restart them later.
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