Imbalance prices turn negative for six straight hours

Imbalance prices turned negative for 13 consecutive settlement periods on Sunday, as low electricity demand and high levels of wind output led the System Operator to reduce generation output from a variety of wind, combined cycle gas turbines (CCGT) and biomass power stations.

The imbalance price dropped below zero in period 21 (starting 10:00am) and remained negative for 13 periods until period 33 (up to 16:30pm), with the price falling as low as -£70.24/MWh in periods 28 and 29.

What happened?

On the day, wind output on the transmission system averaged an elevated 7.2GW, meeting 28% of transmission system demand, which averaged 26.0GW. This led National Grid to take action on the Balancing Mechanism (BM) and turn down a variety of power stations.

The fact that many wind farms are located in Scotland exacerbated the requirement to turn down output in certain locations, as there is not enough capacity to transport all the electricity to Southern England, where electricity demand is highest – known as ‘constraints’ in grid terminology.

As shown in Figure 2, the majority of the capacity turned down by National Grid was from wind farms, but with some biomass and CGGT plant also reducing output. Wind farms and biomass in particular will be in receipt of subsidy payments, and therefore require a payment to decrease output.

With many of these actions taken to manage constraint issues in Scotland, rather than because there was simply too much generation, much of the output that was turned down needed to be offset by increasing the output of other plants. This can also be seen in Figure 2, with National Grid turning up CGGT plant at the same time as wind farms were being asked to turn down.

Figure 2 shows the volume of electricity that National Grid accepted in the BM to turn up (known as accepted offers), and the volume of electricity National Grid turned down (known as accepted bids), by technology. The accepted bid volumes were significantly greater than the accepted offer volumes, indicating there was too much generation on the system and ultimately resulting in negatively priced actions being accepted to balance the system.

In addition, the way the imbalance price is calculated changed in November 2018. Under the new arrangements, the Single Imbalance Price (SIP) for each settlement period is effectively calculated using the costliest 1MWh of actions that National Grid takes to balance the system. This is the Price Average Reference (PAR) volume, which changed from 50MWh (PAR 50) to 1MWh (PAR 1) last November. Under the new methodology, it is more likely that imbalance prices will outturn negative, with the potential that only one negatively priced action on the BM will result in a SIP below zero.

Who got paid what?

The average accepted bid price (the price to turn down generation) from wind farms was -£75.9/MWh, with Walney offshore farm – which is accredited to the Renewables Obligation (RO) – receiving the lowest price of -£188.9/MWh. Biomass power stations, most notably Drax which also receives RO payments, had an average accepted bid price of -£61.2/MWh.

For the majority of negatively priced periods, it was either Drax’s biomass units or onshore wind farms setting the imbalance price, with CCGT and hydro plant occasionally setting the price.

Conversely, the average accepted offer price (the price to increase output) from CCGT plant was £62.3/MWh, the highest of which came from Pembroke at £621.0/MWh. During the day, accepted offers were rarely used to set the imbalance price as the volume of bid actions outweighed the volume of offer actions.

The wider impacts of negative prices

While negative pricing in the BM is not a new phenomenon, it is a trend that is on an increasing trajectory, as more intermittent renewables are added to the system and changes to the imbalance price calculation has made it easier for the SIP to outturn below zero.

However, negative pricing events have not yet had a significant impact on the wholesale power market. While there have been some occurrences on the within-day wholesale market, day-ahead auction prices have never fallen below zero, with the lowest being £1.57/MWh for a single one-hour block, which occurred in 2017. But Sunday’s events do highlight the increasing impact of price cannibalisation – the depressive effect that high levels of intermittent renewables output have on the wholesale power price – which can significantly reduce revenues for renewable generators.

Our analysis expects a rising number of negative wholesale price occurrences in the future, as intermittent renewables capacity rises. This is shown in Figure 3, which shows that by 2034 14% of half-hourly settlement periods could outturn negative at negative prices.

The cannibalisation effect will have a significant impact on the business case for new build renewables, as projections that this phenomenon will increase have lowered projected revenues for merchant plant and hindered the ability for offtakers to offer investible floor prices in long-term Power Purchase Agreements.

The impacts are not limited to subsidy-free renewables reliant on the wholesale price, but also to RO stations that are also exposed to wholesale prices. Furthermore, while Contracts for Difference (CfD) generators are largely protected against price cannibalisation, any generators from Allocation Round 2 and onwards will not receive their subsidy payments if day-ahead auction prices turn negative for six consecutive hours or more.

Negative pricing, both in the BM and on the wholesale market, is a trend to watch out for as more intermittent renewables capacity comes online.

Cornwall Insight tracks the Balancing Mechanism daily through its daily BM Report, and wholesale power price trends in its weekly Energy Market Bulletin. Please contact for more information.

Related thinking

Regulation and policy

Government Announces Record Budget for Contracts for Difference Allocation Round 6

The government has released the budget and reference prices, along with the auction parameters, for the upcoming Contract for Difference (CfD) Allocation Round 6 (AR6). As recently reported, there were considerable questions outstanding about the parameters which will be used in the auction and significant pressure was placed on AR6...

Energy storage and flexibility

Waiting to connect: the problems and solutions for network connection queues (Part 2)

Network connection queues continue to be a notable topic of interest as many generators face significant delays to project development – an issue that is directly conflicting with net zero ambitions and recent focuses on strengthening domestic energy supplies. In Part 1 of our two-part series on connection queues we...

Energy storage and flexibility

Waiting to connect: the problems and solutions for network connection queues

The number of grid applications has risen significantly in recent years, resulting in increased pressure on the electricity networks to facilitate new connections. In its Energy Security Strategy, the UK government set out ambitions for 95% of electricity to be sourced from low carbon generation by 2030, and for the...

E-mobility and low carbon

2022’s most exciting ‘Charts of the Week’

Some of our team have looked back throughout 2022 and picked their most exciting ‘Chart of the Week’.​Their choices include exploring green tariffs, wholesale gas prices, CfD allocation round 4 and the MHHS Implementation Levy.  It’s My Birthday – Two years of Dynamic Containment Picked by Tom Faulkner, Head of...

Energy storage and flexibility

Balancing Reserve: ESO proposes new regulating reserve service

In recent months National Grid ESO has been developing a new reserve service to improve the management of the system and enable the grid to accommodate zero carbon operation of the electricity system by 2025. On 28 September the ESO first announced at their Autumn 2022 Markets Forum, a proposal...

Energy Market Design

Financing Net Zero: A (revenue) cap on UK merchant financing opportunities?

On 13 October 2022, we hosted the latest instalment of our ‘Financing Net Zero’ webinar series. The session, sponsored by Shoosmiths, focused on opportunities and challenges for merchant financed renewable projects amid the current wholesale price volatility.   In recent years, due to the increasing success-rate and profitability of renewable projects,...

Regulation and policy

Government to consult on the introduction of Cost-Plus-Revenue Limit

The government issued its Energy Prices Bill on 12 October. The bill will put in law a number of the already-announced mechanisms that will be used to support households and businesses this winter including the Energy Price Guarantee and the Energy Bill Relief Scheme. Also announced alongside this is the...

Energy storage and flexibility

From zero to hero: Can CfDs split markets and reduce costs this winter?

Given media comment on the imposition of a revenue cap for low carbon generators instead of migration of existing projects onto a CfD, please find below a blog published by Cornwall Insight three weeks ago. Not only did this note the possibility of the revenue cap being a fall back...