Image by Oleg Gamulinskiy from Pixabay

Changes in wholesale markets (day-ahead and intraday sessions) coupled with an increase in renewables and interconnector capacity are expected to increase revenue opportunities – and risks – for energy traders.

According to energy data analyst EnAppSys, these changes are expected to influence the dynamics of operation of non-dispatchable assets and their operation in these markets.

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Starting on July 6, the cap and floor limits in the day-ahead and intraday markets, €180/MWh and €0/MWh, respectively, will be eliminated. These limits will be replaced by €3,000/MWh and -€500/MWh for the day-ahead market, and €9,999/MWh and -€9,999/MWh for the intraday markets.

Figure 1, credit EnAppSys

On one side, the previous maximum limit (€180/MWh) has never been reached, with the maximum price of €121.24/MWh occurring on January 9th, 2021. It is expected, however, that under low renewable availability conditions and shortage of supply (especially if it coincides with France having similar conditions), the peak prices could be higher, due to a combination of higher carbon and gas prices, and the more incentivised ability of traders and generators to sell at higher prices into Spain.

On the other side, low prices in the intraday market are not unheard of as Spain saw €9.25 MWh in the Intraday Continuous Market on April 5th, 2020 (as shown in figure 2) for around eight hours due to a combination of high renewable generation and low demand. This price was more moderate than prices in the adjacent French market, which were minus €60/MWh at one point in the same period.

Figure 2, Credit EnAppSys

According to EnAppSys, it is likely that low prices (moving to negative) will occur more regularly going forward, especially in the intraday markets, for the following reasons:

  • Renewable generation keeps increasing at a very fast pace. Our models show that negative prices will occur with certain regularity on the intra-day market, mainly because of the highly volatile weather patterns that wind and solar can have during the day.
  • Day ahead and intraday price coupling over the interconnectors. Interconnector capacity for Spain is relatively low, with heavily used capacity between Spain and Portugal. Even though there is a relatively low capacity with France, market coupling without the former price limits will impact Spain during high renewables both domestically and internationally.

With projects underway to increase interconnection, expected to go live after 2026, Spain will become more exposed to continental price volatility, for better and for worse.

Jean Paul Harreman, director of EnAppSys BV, said: “For the day-ahead market it may take more time to see negative prices, since the participants can adapt their generation strategy. No zero prices have yet occurred (with instances of prices as low as €0.01/MWh). However, those occurrences are not frequent and there is no expectation of them becoming significantly more relevant on their own. Overall, we would anticipate that the market will start to see prices converge with adjacent markets, resulting in more volatility in the market than has been seen previously.

Figure 3, credit EnAppSys

“What fundamentally changes the equation is the renewable growth together with lower demand than in previous years, and the trading across the interconnectors with France. The ability to monitor interconnector flows and capacity available in both directions, but especially in the France-Spain direction, will become critical now.

“It’s likely that Spain will see occurrences of negative prices due to interconnector imports. For instance, overnight on Sunday 9th May, negative prices would have been likely, if the new cap and floor limits had been in place (see figure 1).”

“The recently accepted National Integrated Plan of Energy and Climate set the goal of increasing renewable generation up to 42%, with interconnector capacity expected to increase from 2.8GW to 10GW by 2030. This will increase cross-border energy trading potential by over 350%.

“Overall, we expect that these changes and future increases in interconnector capacity will cause prices in the market to converge with those of its neighbours and overall continental Europe. This will mean more volatility in prices that can create opportunities as well as risk for traders and consumers. Stronger price signals, in response to demand and renewables, have created opportunities across Europe both for traders to move energy flow across borders and for consumers to manage on-site generation or demand to manage cost and ultimately contribute to the energy transition.”