How to deal with negative power price spikes?—Flexible voluntary curtailment agreements for large-scale integration of wind

For the large-scale integration of electricity from renewable energy sources (RES-E), the German system seems to reach its limits. In 2009, the electricity wholesale market experienced serious negative prices at times of high wind and low demand. The feed-in system in Germany consists of a fixed feed-in price, a take-off obligation and a RES priority rule, and in practice only very restrictive use of RES-E curtailment. Exactly the latter is the problem. We argue that the overall performance of the system would improve seriously by lifting the restrictions on the use of voluntary curtailment agreements, while retaining the priority rule as such. Since generators of RES-E can only improve under this system reform, investment conditions improve, leading to higher installed RES-E capacity. This in turn implies that reduced wind output due to curtailment can actually be offset by higher wind output in all periods in which there is no problem.

► We examine the large-scale integration of electricity from renewable sources (RES-E) into the German energy market. ► Seriously negative prices at the wholesale market suggest that market design could be improved. ► We argue that allowing flexible use of voluntary curtailment agreements (VCA), while keeping the priority feed-in rule, would increase the total system’s efficiency. ► Improved investment conditions due to flexible use of VCAs leading to higher installed RES-E capacity could offset the reduced wind output and would not impede climate policy goals.