Cashing In on Power: Customers Get Paid for Using Electricity
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Financial setback on the stock market: Power companies shell out money to consumers - Stock market anomaly: Customers receive funds from electricity providers
Imagine this: Instead of paying for the electricity you use, you get paid instead! Unbelievable, right? Well, it's happening, and it's all thanks to an oversupply of electricity in the system.
Recently, some power consumers in Eastern Germany rejoiced as they saw their electricity bills go negative. EnviaM, an energy supplier, actually paid its customers up to -11.4 cents per kilowatt-hour for the electricity they consumed between 12:00 PM and 3:00 PM on May 11. Similar instances were spotted with other electricity providers as well.
Negative exchange prices are not foreign and are usually caused by an abundance of electricity generated from solar and wind installations when demand is low, such as during holidays [1][2][3]. Last year alone, there were 459 hours with negative prices on the Day-Ahead Market, as reported by the European Power Exchange Epex Spot. The power price even dropped as low as -25 cents per kilowatt-hour on Mother's Day [3].
Dynamic Tariffs: Adjusting Prices Based on Exchange Prices
However, it's rare for the end-customer price to go negative. EnviaM introduced a novel tariff called "Mein Strom Vision" in February 2024, which made this possible for the first time [3]. While the price went negative during the day, it did exceed 30 cents in the evening for these customers.
Eins, another German energy provider, also reported this phenomenon for some of its customers on May 11. The price effect varied depending on the customer's postal code and was around 0 cents per kilowatt-hour between 12:00 PM and 2:00 PM on that day [3]. The company did not provide further details about the number of customers using this tariff or their benefits from the low prices. Sachsenenergie could not provide any information [3].
Consumer protection organizations are skeptical about these tariffs as prices can skyrocket during a power shortage, potentially harming the consumer [3]. However, these tariffs can offer added value for households with high and flexible consumption, like those with electric cars, heat pumps, or battery storage [4].
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- Chemnitz
Additional Insights:
Negative power prices occur when electricity suppliers pay consumers or the grid to take away excess electricity instead of receiving payment for it. This situation primarily arises due to an oversupply of electricity relative to demand, particularly from renewable energy sources like solar and wind [2][4][5].
For power providers: When prices go negative, producers must pay to supply electricity to the grid instead of earning revenue. This may happen because shutting down and restarting power plants can be costlier than paying to offload excess energy [4]. Renewable generators, especially those with subsidies or fixed-price power purchase agreements (PPAs), can sustain this because their overall economics factor in guaranteed payments or green certificates, making generation profitable despite negative spot prices [2][5].
For consumers: Negative prices mean that consumers or the grid can effectively receive payment or free electricity during these periods. In some cases, grid operators or large consumers may be incentivized to increase consumption or use energy storage to absorb surplus electricity when prices dip below zero [4][5].
Factors Contributing to Negative Power Prices:
- Excess supply from renewables: Large amounts of solar and wind generation during times of low demand (such as mid-day or weekends) create supply that exceeds consumption, pushing prices below zero. The "duck curve" phenomenon—where solar production peaks mid-day but demand peaks in the evening—exacerbates this imbalance [4][5].
- Rigid generation and grid constraints: Conventional power plants often cannot ramp down quickly or cost-effectively, so they may prefer to pay to deliver power rather than shut down and restart. Additionally, insufficient energy storage or grid flexibility means excess electricity has nowhere else to go [4][5].
- Market design and cross-border flows: European power markets with integrated grids see electricity flowing from areas with surplus (e.g., Germany with strong renewables) to neighboring countries (e.g., Romania, Slovenia), causing downward pressure on prices in importing countries' day-ahead markets [4].
- Subsidies and PPAs: Renewable generators often receive subsidies or have fixed-price agreements that insulate them from market price volatility, allowing them to keep producing even when spot prices are negative [2][5].
- The unprecedented incidence of negative electricity prices in Eastern Germany raises opportunities for financially-savvy investors in the power sector, given the possibility of earning profits through investing in companies offering dynamic tariffs like "Mein Strom Vision" by EnviaM.
- In light of the stock-market's response to the growing trend of negative power prices, understanding the influence of employment policies enacted by power providers, such as the employment of more renewable energy generators, will be crucial for investors analyzing potential investments in the stock-market.
