The opening month of ISEM has come to pass, and the “Notable Market of the Month” award for October most definitely went to the Balancing Market. The volatile prices were the talk of the industry, as participants got to grips with their new exposure to the real time market. Not to be outdone though, the Day Ahead market has stepped up in the opening days of November, with some intriguing market dynamics at play.
With over 95% of volumes trading through the Day Ahead market, the price outcomes provide the main value driver for the industry. Generally the opening month has seen daily auction results that reflect the supply and demand fundamentals at play under the new market structure. But what happens when those fundamentals are pushed to the extreme ends of their ranges? Well the early hours of Saturday morning gave us an early example of what might be to come.
As the below graph for the 3rd of November shows, participants bidding their wind generation into the Day Ahead auction on the Friday morning actually had more power to sell than the expected demand on the system.
With no energy requirement for thermal generation, and with no short run marginal cost on wind, the big question was what would that do to the auction prices? Well the result was dramatic, with the price for the early hours of the auction clearing at €0 MWh. Yes, any generator, renewable or thermal, sold through the auction for those hours was giving it away for free! With peak prices over €180 MWh in the previous days, the volatility of returns through the Day Ahead market is providing its own challenges.
So is this a one-off? As we head into the winter months, demand will increase in these overnight periods, but wind output potentially can also. Prices can actually go negative in the Day Ahead auctions, but clearly there is limited incentive for generators to be paying out money for producing power – €0 MWh is bad enough! And while support schemes such as REFIT and ROCs offer some protection to renewables, participants will be quickly looking for more economic options.