Australian Chart of the week | Race to the bottom: Negative prices on the rise and spreading

Negative prices are becoming a more frequent occurrence in the NEM as variable renewable energy (VRE) plays a larger role in the supply mix. Negative priced offers from generators form a large part of the MW capacity offered into the market. The negative prices we see in dispatch intervals reflects the situation were there is sufficient negatively priced capacity to meet demand. In this week’s Issue, we look into the trends of negative prices and the challenges that come with operating in this type of environment.

Firstly, to be clear, there is nothing wrong with negative prices. The ability to offer negative prices was originally designed to provide financial incentives for participants to self-manage their commitment decisions. Individual generators would need to determine their willingness to continue operating or shut down in the face of negative market prices. That decision rests on a few factors including the expected duration of negatively priced periods as well as the respective participant’s market exposure and risk profile.

To keep reading, please log in to your account

Alternatively, please sign up to receive free market insight online and direct to your inbox

Related thinking

Low carbon generation

Australian Chart of the week | 3 2 1… fight: VRE and price cannibalisation in NEM

In the last decade, the rapid decline in deployment cost of variable renewable energy (VRE) generation capacity has given renewables an advantage over fossil fuels for new builds as highlighted in ‘Renewable Power Generation Costs in 2020’ report from the International Renewable Energy Agency (IRENA). In the report, Australia has...

Regulation and policy

Australian Chart of the week | VRE pays more as PFR helps reduce coal FCAS costs

In our previous ‘Chart of the week’ in November 2020, we reviewed the increasing percentage of causer pays cost that solar generators bear due to their generation profiles and how this results in them paying significantly more of the causer pays cost as a ratio of the generation they provide. More than...

Commercial and market outlook

Australian Chart of the week | Two roller coaster rides for the price of one? Preliminary vs final MLFs

In recent years, movements in marginal loss factors (MLFs) have received significant attention in the National Electricity Market (NEM). Many renewable projects in remote areas have experienced material MLF reductions as more supply connects nearby. For example, the MLF for Broken Hill Solar Farm saw a whopping 50 ppt drop...

Low carbon generation

Australian Chart of the week | “I feel the earth move under my feet”: from high to lows

We have seen a dramatic shift in FCAS price fortunes over the past year or so, going from all-time highs of ~$229.3mn in Q1 of 2020 (due to the separation event) to only ~$40.1mn in Q1 2021. Since 2019 we have also seen regulation raise prices decline from robust prices...

Low carbon generation

Chart of the week | To 6 GW… and beyond! Offshore wind in the CfD scheme

The role of Contracts for Difference (CfD) generators in the electricity market continues to expand and Allocation Round 4 (AR4) to be held later in 2021 will expand this role further. By the end of 2020, installed generating capacity supported by the CfD scheme already totalled 5.2GW, providing Great Britain...

Energy storage and flexibility

Australian Chart of the week | Supply creates its own demand: negative pricing in the NEM

In the National Electricity Market (NEM), generators offer the prices at which they are willing to supply electricity to the system operator – the Australian Energy Market Operator (AEMO) – who in turn matches these offers with demand on a least-cost merit order basis. The offer price of the last...

Low carbon generation

Australian Chart of the week | NEM wind generation: Do birds of a feather flock together?

With a growing expectation that coal plants will face early retirement, this week’s ‘Chart of the week’ examines the correlation between different wind patterns in the various identified Renewable Energy Zones in the NEM. As would be expected, there is a tendency of high correlation within the individual states, where...

Energy storage and flexibility

Chart of the week | We built this city… on existing generation

The Capacity Market (CM), introduced under the Electricity Market Reform (EMR) policy programme is designed to ensure security of electricity supply in GB. This is done by providing payments – determined through a competitive auction– to generators and eligible demand side response (DSR) and can encourage existing plant to remain...