For energy buyers in the UK, the idea of being paid to use electricity might sound far-fetched. Yet, in 2023, this became reality for over a week in total. The increasing share of wind and solar power on the grid is driving electricity prices into negative territory more frequently. For businesses able to shift their energy consumption to these low-price periods, this presents a valuable opportunity.
Last year, wholesale electricity prices on the N2EX exchange (the UK’s primary day-ahead electricity market) were negative for 176 hours – a significant rise from just seven hours in 2021. This trend is a result of the UK’s success in expanding renewable energy, combined with the way government support schemes incentivise renewable generators to keep producing even when demand is low.
In 2024, low-carbon generation overtook fossil fuels for the first time in the UK. Wind, solar and hydro accounted for 37% of electricity generation last year, up from 26% in 2021, while fossil fuel generation dropped from 45% to 27%.
This graph shows the increase in negative pricing hours on the N2EX exchange from 2021 to 2023, driven by growing renewable energy generation and market incentives.
The unintended consequences of renewables growth
The shift to renewables is essential for reducing carbon emissions. However, the way these sources are integrated into the market is distorting pricing, increasing the cost of decarbonisation, and putting pressure on grid stability.
What causes negative pricing?
Negative electricity prices occur when supply exceeds demand, pushing system prices below zero. During these periods in 2023, wind and solar made up an average of 63.2% of the generation mix. While some renewable plants can adjust their output, many are incentivised to keep generating due to the government’s Contracts for Difference (CfD) scheme.
Under the AR1 and AR2 CfD rounds (early phases of the government's renewable energy support scheme that guarantee a minimum price for electricity generated) renewable generators still receive their guaranteed strike price even when market prices go negative. Only projects under AR3 and later stop receiving payments after six consecutive hours of negative pricing. Additionally, many renewables projects benefit from Renewable Obligation Certificates (ROCs) and Renewable Energy Guarantees of Origin (REGOs), which can be sold separately. With ROCs valued at over £60/MWh and REGOs reaching £20/MWh, some generators still profit even if prices fall as low as -£80/MWh.
Meanwhile, most electricity consumers are not set up to respond to negative pricing. While an efficient market would see demand increasing when prices drop, many businesses and households have fixed supply arrangements that don’t incentivise them to shift consumption.
Grid risks and emergency measures
On particularly windy or sunny days with low demand, the grid can become dangerously oversupplied. This issue is growing in both frequency and severity: since 2022, there have been 59 half-hour settlement periods where prices fell below -£80/MWh.
The UK’s interconnectors, which allow power exports to mainland Europe and Ireland, offer one way to manage excess supply. However, these neighbouring grids are also increasing their renewable capacity and often experience similar weather conditions, limiting the effectiveness of cross-border trading.
If excess generation cannot be exported or absorbed, the National Energy System Operator (NESO) steps in. This involves using balancing and frequency containment reserves, curtailing generation, or, in extreme cases, disconnecting some generators from the grid. If these measures are not enough, entire distribution networks may be shut down, increasing the risk of blackouts.
Solutions and opportunities
With wind capacity targeted to reach 70–80GW by 2030 (from 30GW today) and solar expected to grow to 45–47GW (from 17GW), solutions are urgently needed.
One step is refining the CfD regime. Since AR4, the Low Carbon Contracts Company (LCCC) has tightened rules around negative pricing events across different market platforms like EPEX and Nord Pool, preventing generators from exploiting price differences between markets.
But negative prices also create opportunities. Battery storage operators can buy excess energy at low or negative prices, storing it for use when prices rise. Large power consumers, such as refrigeration facilities or electric vehicle charging networks, can adjust operations to take advantage of these low-cost periods.
To capitalise on negative pricing, businesses need two key capabilities:
- Market intelligence: Accurate, near-term price forecasts help identify dips and spikes, allowing businesses to adapt their energy use.
- Access to the spot market: Being able to buy power directly at real-time prices enables cost savings and greater flexibility.
At Squeaky, we help businesses navigate the complexities of renewable energy procurement, providing the tools and insights needed to make the most of negative pricing events. Whether you're looking to optimise energy costs or integrate more renewables into your strategy, we can support your journey. Get in touch to find out how we can help.
(For more insights on energy pricing trends, see our related blog on The unintended consequences of negative power prices in the UK.)