Price formation and future price developments

As part of the project “ Price formation and future price developments”, FfE and PASM Power and Air Solution Condition GmbH, a wholly owned subsidiary of Deutsche Telekom, analyzed future electricity prices as a basis for the economic assessment of a battery storage system. In addition, the most important influence factors and dependencies on the electricity market were assessed on the basis of historical data in order to obtain an overview of both historical and future developments.

Methodology and Key Results

To determine the future price development, day-ahead prices were first calculated for the three support years 2025, 2030 and 2035 in the ISAaR energy system model. For this purpose, the trend scenario was used, which describes the current trend of the energy system and thus the most probable development from FfE’s point of view. The underlying premises are based on scientific findings and expertise in all areas of the energy industry.

In addition to mapping the consumption and generation side, ISAaR’s energy system modeling requires additional parameters for an accurate forecast. Examples include fuel prices, import volumes, technology development and grid expansion. These parameters are continuously adjusted on the basis of current developments and thus reflect the trend in energy system development.

The trend scenario thus makes it possible to understand the system characteristics in dynamic development and to base asset valuation on this understanding.

Based on the resulting day-ahead and residual load forecasts, intraday prices and prices for Frequency Control Services were then derived. In addition, future capacity and energy prices on the secondary control reserve market were deduced on the basis of analyses of historical prices. For these prices, relevant statistical parameters were determined and interpolated for the intervening years.

In addition, fundamental correlations and historical developments of relevant energy industry markets were analyzed and illustrated, in particular for the use of flexibility. In addition to quantitative studies of historical prices, factors influencing pricing on the markets were discussed and estimates for the future were made.

No major changes in the level and volatility of power and energy prices are expected on the balancing power markets. While the price level on the spot markets is assumed to be relatively stable, price volatility is expected to increase, as has already been observed in recent years.