21.10.2024

Are extreme prices on the German electricity market on the rise?

  • Price volatility and price spikes have increased significantly in recent years.
  • Since 2023, particularly on the intraday market, there have been an increasing number of extreme prices.
  • By selling energy at all times with electricity prices above €1000/MWh since 2023, a battery storage system with 1 MW could have earned over €17,800 within 10 hours.

The German electricity system is constantly changing. The increasing share of renewable energies, the growing number of decentralized generation and changing demand patterns are leading to greater fluctuations and increased uncertainty on the electricity market. The energy crisis in 2022 has led to new price records and numerous price peaks in recent years, which has also fueled the public debate on so-called “extreme prices”. However, there is no clear definition of when a price is considered an extreme price. Before the energy crisis, prices below EUR 0/MWh and above EUR 100/MWh were considered rare [1]. Since then, however, the average price level has increased significantly [2], which is why it can be assumed that these limits have changed.

In this article, we examine the historical development of extreme price peaks in recent years. To do so, we look at the day-ahead market and quarter-hourly, continuous intraday trading (represented by the ID3 price index) using specific examples. The analysis shows that the day-ahead market has become fundamentally more volatile, but that steep extreme prices are less common in this market. Extreme prices, both negative and positive, occur more frequently on the intraday market, as here in particular the forecast deviations of solar and wind generation are balanced out. In addition to the incorrect forecasting of renewables, changes in the load (forecast) and individual events such as a technical fault may also result in extreme prices. Figure 1 shows the price development of the day-ahead market and the ID3 index from 2019 to present. We have looked at three price peaks in detail as examples and categorized the other price peaks according to forecast deviations, renewable generation surpluses and individual events.

Figure 1: Day-ahead and intraday trading prices (ID3 Index) from 2019 up to and including October, 13 2024 with classification of extreme price spikes

Example 1 is June 3, 2024. On this day, PV production was around 7 GW below the forecast values, leading to a sudden increase in demand on the intraday market and a subsequent rise in prices. This case shows how the increasing share of renewable energies also leads to an increased impact of forecast changes on prices. On the other hand, forecasts for the generation of renewable energies are continuously improving, which is why a direct correlation between the share of renewable energies and extreme prices cannot be assumed on a general basis. By contrast, on September 15, 2020, the evening load peak was significantly underestimated and turned out to be around 4 GW higher than expected, with a similar effect on intraday trading, where additional power likewise had to be procured at short notice. The same happened on several days in 2023 (August, 8 and September, 12 and 17), where an underestimation of the expected load also led to high price outliers on the intraday market. Also on July 3, 2023 and June 10, 2024, a sharp rise in intraday prices were caused by forecast deviations, in this case due to wind generation falling short of expectations. However, the intraday prices of just under 2000 € on July 3, 2024 may be attributed in part to an already sensitive market situation, as a longer period of negative prices had occurred on the day-ahead market on the previous day with a price minimum of -500 €/MWh, as described in the following section.

Example 2: One of the visible negative outliers in July 2023 shows a price level of -500 €/MWh, a 14-year low in the day-ahead market. It is due to a combination of several influencing factors: July, 2 was a sunny but windy Sunday with moderate temperatures across Germany. There was therefore a high level of wind and solar generation, no significant cooling or heating demand and little demand for electricity during the weekend. In the hours from 9 a.m. to 7 p.m., the load was completely covered or exceeded by renewable energy generation. In addition, inflexible power plants, which would have had to accept high costs in the event of a shutdown and are in a constant balancing process during periods of negative prices, thus continued to generate electricity. In particular, plants that are also remunerated for heat often accept negative prices [3]. On the day described in the example, this led to a sharp drop in prices, which underlines the increasing relevance of flexible systems that can be switched off as the share of renewables increases. Further examples of such a generation surplus from renewables are April 10, 2023 and May 12, 2024, when renewable generation almost completely covered the load, but total generation exceeded demand due to inflexible conventional plants. In these cases, however, the strongly negative prices were mainly seen in intraday trading, while the day-ahead prices were below zero, but – especially in the first case – less extreme.

Example 3: While many price spikes can be explained by forecasting errors (example 1) or a very large supply of electricity from renewable energy sources (example 2), there are also price outliers triggered by singular, unforeseeable events. For example, the strikingly positive outlier in example 3 from June 26, 2024 was caused by a technical error [4, 5], which resulted in the decoupling of individual countries from the European market. This resulted in a price of 2,325 €/MWh in Germany for the hour from 6 a.m. to 7 a.m.. For the following hour the price still remained at just under 1,800 €. In neighboring France, for example, prices of around 100 €/MWh were observed at the same time. This incident also shows the relevance of European market coupling.

Due to the short-term nature particularly of continuous intraday trading, there can also be strong price outliers that cannot be directly attributed to one of the reasons discussed. For example, if certain players have to rebalance their balancing group at short notice, this can result in a very high willingness to pay due to a lack of alternatives. These individual bids may have a strong influence on prices in continuous trading due to the pay-as-bid scheme and a lower overall liquidity. On March 19, 2023, for example, the ID3 index for the last three hours of continuous trading rose to just under 2,000 €. On that day, bids between 150 €/MWh and 9,200 € were received in continuous trading, which clearly shows the volatility and price range. The situation was similar on June 25, 2023, when the highest bids even reached the upper price limit of 9999 €/MWh in continuous intraday trading and the ID3 Index rose to over 3,500 €. In both examples, however, the trading volume was also relatively low at between 500 and 1,000 MWh.

The three examples therefore showcase three key reasons for extreme prices::

  • Deviations from PV, wind or load forecasts, particularly evident in intraday trading
  • Strong imbalance between renewable generation and load, often combined with high generation from inflexible power plants
  • Singular events such as technical errors

In addition, there are also price peaks in continuous trading that cannot be directly attributed to the aforementioned reasons and show how much prices can be influenced by individual bids.
This extreme prices, which have increasingly occurred since 2023, can be utilized by flexibilities to generate additional revenue. If energy had been sold at all times with electricity prices above €1000/MWh, a battery storage system with 1 MW, for example, could have earned over €17,800 within 10 hours.