Negative Pricing, CfDs, and the New Operational Reality for Renewable Assets
- Iain Dinwoodie
- 2 days ago
- 2 min read
Energy assets are planned and funded based on long term assumptions in energy prices and market conditions. Long term Power Purchase Agreements (PPAs) and the Contracts-for-Difference (CfD) support mechanism provide long term financial clarity to provide investor confidence, lower project risk and drive down the overall cost of delivering renewable projects. However, projects exist in a wider energy market that are subject to short term shocks like the global COVID pandemic reducing demand and global conflicts increasing the price of oil and gas as well as longer term structural changes like the increased contribution of non-dispatchable renewable generation.
Changes to the financial environment can introduce new operational requirements such as reacting to price signals to reduce generation output, schedule maintenance activities or provide third parties increased SCADA and operational data for their financial reporting.
A particular challenge for CfD projects is around operating in negative pricing events. Negative pricing events happen when electricity supply is temporarily greater than demand, and some generators would rather pay to stay online than switch off. In Great Britain, this is increasingly driven by higher renewable output. 2025 saw more negative pricing events than 2021-2024 combined with periods of negative pricing moving from overnight when demand is low to mid afternoon when there is increased solar demand which is highly correlated across the energy system.
For CfD projects (excluding AR1) certain periods of negative pricing are excluded from payment period and for later rounds this was extended so that CfD generators are not paid when ‘day ahead’ electricity market prices are negative for any period. However, the contractual arrangements with the project offtaker may mean that it is more economical to turn off the assets or reduce their forecast production.
In this increasingly complex operating environment, owners need to be able to receive alerts based on market conditions and track associated actions to ensure that they are successfully completed and to identify how the evolving market should impact operational choices proactively. KUDO can support operators to achieve this via pricing alerts and acknowledgeable trackers in our system.
