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Aurora’s analysis finds developers and investors a worried about the future profitability of renewable investments
Analysis by Aurora Energy Research reveals a six-fold surge in negative price periods in Great Britain between 2022 and 2024.
This increase has caused concerns among developers and investors about the future profitability of renewable investments but also highlights the opportunity for more flexible capacity on the system.
Aurora attributes the rising frequency of negative prices to oversupply conditions, driven by weak power demand coinciding with robust renewable output and economic incentives embedded in legacy renewable subsidy schemes in GB and major European markets like Germany and the Netherlands.
Power demand in Great Britain has fallen by over 20% compared to 2010, primarily due to declining industrial and commercial energy consumption, caused by improved energy efficiency and reduced output.
At the same time, the adoption of electrification in key sectors such as transport and heating has lagged expectations.
Aurora cites high costs, supply chain pressures, and infrastructure constraints as barriers to faster progress.
This slower pace of electrification poses a significant threat to achieving economy-wide net zero targets in Great Britain and also creates a more uncertain environment for renewable investors due to concerns about oversupply.
The formation of negative prices is particularly driven by renewable assets supported by legacy subsidy schemes such as the Renewable Obligation (RO) scheme and early-round Contracts for Difference (CfD). These subsidies allow assets to receive financial support even during periods of negative prices, removing the economic incentive to curtail generation in times of oversupply.
Newer CfD contracts no longer offer subsidy support during periods of negative prices, thereby improving the economic incentive for assets to respond to price signals and reduce output during periods of oversupply but also increase the risk exposure of assets.
Additionally, similar conditions of oversupply, driven by weak power demand in major European markets such as Germany and the Netherlands, and legacy subsidy contracts in these regions have contributed to the significant spike in the frequency of negative prices seen in the GB market this year, with the majority of occurrences in 2024 driven by imports.
It is worth noting that the spike in frequency of negative price periods has also been met by improving margins for battery assets in GB.
Achieving the renewable capacity outlined in National Grid ESO’s Clean Power 2030 scenarios will require significant private sector investment.
Improving the flexibility of the power system by supporting the uptake of flexible, price-responsive sources of demand, such as electrolysers and EVs, as well as long-duration energy storage systems will be crucial to bolstering the business case for renewables as well as ensuring efficient system operation, stated Aurora.
Pranav Menon, research associate at Aurora Energy Research, said: “While the Clean Power 2030 target provides a clear vision to guide policy over the next few years, maintaining the profitability of renewable assets at the capacity levels outlined in NESOs pathways requires additional focus on unblocking bottlenecks around infrastructure and supply chains, which have limited the uptake of electrification in GB over the past few years, alongside a greater focus on improving system flexibility.” |
