Dynamic Pricing Market Ideal for Renewables Growth

Market volatility, created by the increase in renewable energy, can be overcome by dynamic pricing.
Published: Tue 16 Dec 2014

Kjartan Skaugvoll, CEO of Cuculus GmbH, discusses dynamic pricing and how the energy industry should view the energy chain in a holistic manner at Engerati’s live studio at European Utility Week.

Renewables creating a volatile market

Renewable energy is changing the energy market significantly. These clean sources of energy are creating a volatility which cannot be controlled in the system. The volatility is causing utilities to add risk mark-ups in the normal pricing of energy contracts, thereby creating a stable price. “The more renewables you get in the market, the higher the risk price will become. This is why the current market system is not going to work. Subsidies and the risk market will go up.”

Dynamic pricing – the way forward

Skaugvoll says that Scandinavia has already resolved the problem. When the electricity market opened up, customers could choose between day-ahead (dynamic pricing) and stable pricing. “It became clear that they should opt for dynamic pricing as they would enjoy lower prices than if they were to opt for stable pricing. The differential between the two markets is significant.”

He goes on to explain that if 10-20% customers opt for dynamic pricing, demand will move from the forward market to the day-ahead market. “This would mean that some of the less efficient traditional power plants will not run. Overcapacity will then become less frequent.” He adds that it will create better conditions for flexible power plants and would solve some of the reserve financing problems in the current market structure. “This will affect the whole chain from generation to consumer. If there is a dynamic price, people can save money as it is effectively demand response.”

So, what stands in the way of dynamic pricing? Skaugvoll says that many in the industry do not look holistically at the energy chain. “They need to create a new system that will accommodate changes in the industry.  Dynamic pricing will even help pay for renewable assets development.”