The Netherlands is committed to renewable energy, but these efforts have led to price fluctuations. In this article, we discuss 'curtailment' as a strategy to reduce excess power, look at its impact and optimisation, and explain how ICE can help implement it for maximum renewable energy gains.
In recent years, the Netherlands has made significant progress in renewable power generation. While this has contributed to a greener energy mix, it has also created more volatility in supply. This volatility leads to both negative power prices on EPEX SPOT (day ahead) and negative imbalance prices. The imbalance price represents the cost incurred by power companies when they have purchased too much or too little electricity. Due to the influence of weather conditions on power generation, negative prices are increasingly common. For example, unexpected sunny weather leads to a surplus of electricity, forcing grid operators to pay other parties to take this excess power or to reduce power production to avoid overloading the grid. In other words, there is a financial opportunity to take surplus power or switch off solar and wind farms. As a result, in recent years, many renewable energy providers and producers have focused on real-time disconnection, also known as 'curtailment', during periods with negative imbalance prices.
What is the impact of smart disconnection?
This year, we still see an increase in moments with negative prices, but the depth of these negative price periods seems to be stabilising (Chart: Bubble Chart Curtailment). This means that potential gains from curtailment have not increased further this year. When the price becomes strongly negative, most parks switch off, causing the imbalance price to fall less rapidly or even rise again. Despite this development, it remains financially beneficial to reduce power generation at appropriate times or increase consumption.
Chart: By month and year, a bubble is visible where the size is a measure of the number of quarters with negative prices, the colour of the bubble is the average negative price and the amounts in the bubbles are the theoretical maximum profit for curtailment (number of quarters/4 x average negative price (euro/MWh) that can be achieved from 1 MW baseload (constant power of 1 MW). Solar and wind will theoretically have a lower potential because they run much less at peak power.
How can switch-off strategies be effectively integrated into organisations?
The growing focus on retrofitting switch-off infrastructure is a notable trend in the market. However, it is often underestimated how these strategies affect other business processes. It is crucial to effectively integrate shutdown strategies across departments, even if curtailment is not directly applied.
A concrete example is an energy company that has to set the price for a customer with a solar farm. This usually involves looking at metering data from that farm in the past year. If the solar farm was switched off during periods of negative prices and the customer is now considering switching to another energy company, this new company should be able to deduce from the available data that the customer was already using curtailment. There is a risk that the new power company will compensate the curtailment twice: first in the initial price calculation based on the previous year and then with each actual curtailment.
What are the key factors for getting the most benefit from switching off renewables?
For those considering retrofitting, it is important to optimise the retrofitting price per farm. Factors such as subsidies, maximum eligible volume, expected annual generation, smart forecasting and control techniques, and the ability to estimate subsidies during the year based on market prices all play a role here. Parties that manage these aspects well achieve significantly more profit from switch-off.
What is the importance of proper contracting?
The contractual agreement between generators and energy companies can be designed in various ways, with variations in the sharing of risk and profit. It is essential to choose the right one based on the situation, where both parties should have an expected benefit at each switch-off. This avoids unfair practices that could be detrimental to the power company, the producer and the market. In general, it is advisable not to make the contract too complex, as curtailment is a complex process to calculate, especially since often the (estimated) non-generated generation must also be compensated. A simpler contract not only reduces potential discussions but also avoids complications in billing and requires less IT capacity. Moreover, switching off affects forecasts. If a park is switched off at negative prices and this is not taken into account in the forecasts, the forecast average generation will be lower, which may lead to higher imbalance costs.
In summary, optimising switch-off is financially attractive, but it is important to properly understand the impact within the organisation. It requires extensive market knowledge and the involvement of experts to make the right changes effectively.
How ICE can help optimise switch-off?
ICE can conduct a thorough impact analysis, advise on the right steps to take and actively contribute to their implementation. With our in-depth market knowledge and extensive experience, we ensure that you get the most out of your renewable energy sources, while simultaneously optimising your operational efficiency.
Feel free to contact with us for more information!