Measuring a paradox: Zero-negative electricity prices

The share of renewables and the number of hours with zero or negative prices in day-ahead markets are increasing in many countries. During these hours, some synchronous generators that are not scheduled are activated by system operators at a high cost to ensure minimum reliable operating conditions. As a result, customers experience a paradox when they see positive end costs during hours with zero-negative energy prices, which incentivizes them to reduce consumption when there is a surplus of renewable energy. We use ARMA-GARCH methods to analyze the costs of ancillary services in the Spanish power system (2023–2024) and their relationship with the hourly day-ahead prices and electricity demand. Cost of ancillary services increases by +0.045 €/MWh for each euro reduction in day-ahead prices, and by 0.182 €/MWh for each additional GWh of total scheduled energy demand. Our main conclusion is that, in a renewable-reliant system, electricity prices fail to signal customers, and the total operating system cost of electricity should consider the vertical sum of the energy cost and ancillary service cost. Similar results can be expected in other countries with a high share of renewable energy. Policy should prioritize reducing ancillary service costs to signal customers efficiently. • In hours with zero-negative prices in day-ahead, system operators take costly actions to ensure safe operation. • End-users see a paradox when pay positive costs for ‘free’ electricity. • Ancillary costs increase by +0.045 €/MWh for each euro reduction in day-ahead prices. • In a renewable system, day-ahead prices fail to signal the total operating system cost. • Policy recommendations should prioritize reducing these non-energy costs to minimize this paradox.