Future outlook on power prices
The increased development of wind and solar energy, good levels of nuclear availability, high hydro production and low load levels have driven electricity prices to extreme lows. But will this situation persist?
High hydro production is typically seasonal and subject to change as we move into summer. Nuclear availability is expected to increase in the coming years, whilst offshore wind farms are finally being connected, contributing to the overall energy supply. Installed solar capacity in France is projected to reach 48 GW by 2030, further enhancing renewable energy generation.
While power production continues to rise, uncertainty remains regarding future demand. Neither French nor European re-industrialisation is imminent, with the earliest projections suggesting potential re-industrialization by 2027, according to RTE's scenario.
With this outlook, France is likely to experience low prices for the next two years. This means the occurrence of negative prices may continue too. While this presents a favourable situation for energy users, it also poses challenges for wind and solar developers.
Factors Influencing Day-Ahead French Prices
With the current subsidy schemes in place and nuclear modulation, it's unlikely that Day-Ahead French prices will significantly drop below 0 when France is alone in the market.
However, prices such as -5 or -20€/MWh can occur when other European countries are also oversupplied. In Belgium for example, subsidies are above 50€/MW, meaning there's no incentive to stop production before prices reach -50€.
In Germany, wind and solar do not receive subsidies when Day-Ahead prices are negative for more than 6 hours consecutively, leading to a lack of specific price signals.
Conclusion
In analysing the dynamics of Day-Ahead prices and energy balancing mechanisms, several key insights emerge:
When Day-Ahead prices break the price floor of 0 EUR/MWh, it requires French nuclear plants to show flexibility. Wind and solar generation also needs to be curtailed too, whilst excess electricity can also be exported to neighbouring countries.
Despite Day-Ahead prices occasionally dipping below 0, it's also crucial to discern "real" negative prices. These range from -2 to -50 EUR/MWh, as they are primarily influenced by neighbouring countries. This underscores the high level of sensitivity within the region, particularly as significant flexibility resources are already utilised.
However, there are also scenarios where cheap flexibility resources are optimised and used at their maximum for managing both the Morning and Evening peaks, as well as solar hours. Therefore, when pumped hydro storage facilities operate at full capacity outside of solar hours and absorb excess energy they are not available for balancing actions.
This means that more expensive flexibility options, such as oil and demand-side response (DSR), come into play during peak demand periods. This was shown to be the case between March and April this year. Cross-border activations with Germany are then also constrained by limited available capacity.
What we can say for sure, is that while demand remains low, periods of oversupply (and further instances if negative pricing) remain likely.