The French Commission for Energy Regulation (CRE) has published its analysis on the phenomenon of negative electricity prices, following a notable increase in their frequency in France since 2023. The report examines the causes behind these occurrences, finding that they do not necessarily reflect market dysfunction. However, in certain cases, they can result in economic losses for society.

To address this issue, the CRE has issued ten recommendations aimed at optimizing the use of installed production capacity. These measures seek to limit the occurrence of negative prices and align them more closely with the marginal costs of renewable energy sources (RES).

Rising frequency of negative prices

Historically, negative price hours accounted for no more than 102 hours annually (1.2% of the time) up to 2022. However, this figure rose to 147 hours in 2023 (1.7%) and surged to 235 hours in just the first half of 2024 (5.4%). These occurrences are most common in early afternoons (between 12 p.m. and 4 p.m., accounting for half of the instances) and during weekends (two-thirds of cases). Half of the negative-price hours feature prices ranging between -€0.1/MWh and €0/MWh.

 Source: CRE

Negative prices reflect market conditions where electricity supply significantly exceeds demand. They reveal varied behaviors among system participants, depending on whether they receive financial support and whether they can easily adjust their output. While not inherently a sign of market or system failure, these prices often indicate suboptimal use of the production fleet, resulting in economic inefficiencies.

Recommendations to improve efficiency

The CRE emphasizes the importance of optimizing the use of production facilities to minimize the frequency and severity of negative prices. Key recommendations focus on revising support mechanisms for renewable energy installations:

1. Incentives for shutdowns during negative price hours:
• For installations under purchase obligation contracts, introduce incentives through contract amendments for certain cases.
  
  
• Lower the threshold for transitioning to a premium remuneration system from 500 kW to 200 kW.
  
  
2. Adjustments for premium remuneration installations:
   
   
• Strengthen existing incentive mechanisms while addressing identified biases.
  
  
3. Enhanced system integration:
   
   
• Introduce mandatory scheduling obligations in grid access contracts.
  
  
• Increase the contribution of renewable energy installations to system balancing.

The CRE remains available to assist government agencies and lawmakers in implementing these recommendations to ensure a more efficient and sustainable energy market in France.