Discover Energy
Why Solar Panels Sometimes Cause Negative Prices
On a sunny Sunday afternoon, the wholesale price of electricity can fall below zero. Producers end up paying buyers to take their power. The paradox is real, the economics are honest, and the explanation is surprisingly elegant.
Reading time: about 10 minutes · From the Discover Energy series
A puzzle to begin
It is a Sunday in May, around one in the afternoon. The sky over Germany is cloudless from the Baltic to the Alps. Solar panels on several million roofs and in several thousand fields are producing at close to their maximum. Offices are shut, factories are quiet, and the country is using about as little electricity as it ever does on a mild spring day.
At that moment, on the German wholesale market, the price of electricity is minus forty euros per megawatt-hour.
Read that again, because it is genuinely strange. A generator selling electricity in that hour does not receive money. It pays. It pays someone else to take the electricity away.
This is not a glitch, and it is not rare. In 2025 the German day-ahead price was negative for 573 hours out of 8,760 — more than one hour in twenty across the entire year, and a substantial share of daylight hours in spring and summer. In 2024 it was 457 hours. The record low, on 11 May 2025, was around minus 250 euros per megawatt-hour.
So what on earth is going on?
First, how a price gets set at all
To understand the negative case you first need the normal case, and it is simpler than most people expect.
Each day, generators offer electricity for each delivery period of the following day at the lowest price they are willing to accept. Buyers bid at the highest price they are willing to pay. The auction stacks the offers from cheapest to most expensive, stacks the bids from highest to lowest, and finds the point where the two curves cross. Everybody who clears — every generator whose offer was below the crossing point, every buyer whose bid was above it — transacts at that single crossing price.
The consequence is important: the price is set by the most expensive generator that was actually needed. A wind farm offering at almost nothing and a gas plant offering at eighty euros both receive eighty euros if the gas plant was required to meet demand. This arrangement is called the merit order, and it is not an accident of design. It is what makes the auction produce an honest answer: every generator has an incentive to offer at its true running cost, because offering higher risks not being dispatched, and offering lower risks running at a loss.
Wind and solar have a running cost of essentially zero. Once built, the sunshine is free. So on the stack, they sit at the very bottom — and as more of them have been built, they have pushed the more expensive plants further and further to the right, out of the money for more hours of the year.
Which explains cheap. It does not yet explain below zero.
The real question: why would anyone pay to produce?
Here is the heart of it. A negative price means that at that moment, the system has more electricity than it can use, and getting rid of a megawatt-hour is worth more to some producers than the revenue from selling it.
That sounds irrational until you look at what it costs a generator to stop.
Some plants genuinely cannot switch off, or cannot switch off cheaply. A large thermal unit that shuts down and restarts a few hours later incurs real costs — fuel for the restart, thermal stress on components, hours of lost availability, and the risk that it will not come back cleanly. If shutting down for three midday hours costs more than paying the market a modest amount to keep running, the rational choice is to keep running and pay.
Others are physically tied to something else. A cogeneration plant supplying heat to a district heating network or an industrial process is producing electricity as a by-product of an obligation it cannot suspend. Waste incineration continues because the waste keeps arriving. Run-of-river hydro produces because the river does not stop.
And then there is support policy. In Germany, renewable installations built under the Renewable Energy Sources Act have historically received a market premium on top of the wholesale price. If your total revenue includes a premium, you can accept a modest negative wholesale price and still be better off producing than not. This has been the single most-criticised driver of negative prices — and it is being deliberately closed. Installations commissioned between the start of 2023 and February 2025 fall under a stepped rule: support lapses if the price stays negative for at least three consecutive hours, a threshold that tightens to two hours in 2026 and to a single hour in 2027. Since the German legislative amendment of 25 February 2025, installations commissioned after that date lose support from the very first negative quarter-hour, with the forgone period added to the end of the support term. The link between subsidy and negative prices is therefore being dismantled step by step.
Add these together and you get a supply curve whose bottom end sits below zero — populated by producers for whom stopping is more expensive than paying.
A pause to consider
It is worth noticing what a negative price actually communicates, because the instinct is to read it as failure.
It is not a failure. It is information, delivered with unusual clarity. It says: at this location, in this hour, electricity has negative value. Anything that can absorb it — a battery, a pumped-storage reservoir, an electrolyser, a heat pump filling a thermal store, an industrial process that can be shifted — should absorb it now, and will be paid to do so. Anything that can stop producing should stop. Anything being planned for the future should be planned with these hours in mind.
A price that could not go below zero would simply hide this. The scarcity — or in this case the surplus — would still exist; the market would just be forbidden from saying so, and the necessary adjustment would have to be made by administrative instruction instead. Very few economists think that would be an improvement.
Who gains and who loses
Negative prices redistribute money, and it is fair to be clear about which way.
Consumers with contracts exposed to the spot price gain directly — in some hours in 2025, German households on dynamic tariffs were effectively paid to consume, once taxes and levies were netted against a sufficiently negative wholesale price. Battery operators and pumped-storage owners gain: buying below zero and selling into the evening peak is the entire business model, and the German market’s average daily spread of around 130 euros per megawatt-hour in 2025 is precisely what makes that model work.
Inflexible generators lose. Renewable operators whose support is suspended during negative hours lose. And the taxpayer, historically, has borne part of the cost through the support schemes — which is exactly why the rules are being tightened.
The great majority of household and business consumers, meanwhile, notice nothing at all, because they buy on fixed-price contracts agreed months in advance. Their supplier absorbed the volatility on their behalf. That is what a supply contract is for.
What the system is doing about it
Negative prices are a growth industry’s growing pain, and the responses are already visible.
Storage is the most direct. Battery capacity in Europe is expanding quickly, and negative-price hours are a large part of the reason: they create the buy side of an arbitrage that used to be marginal and is now routine.
Flexibility on the demand side is the second. Industrial processes that can be shifted by a few hours, electric vehicle fleets that can choose when to charge, heat pumps that can pre-heat a building at midday rather than at six in the evening — each of these turns a problem into a resource.
The market design itself is adapting, too. Since October 2025, the European day-ahead market — Germany included — has cleared in quarter-hour rather than hourly resolution; hourly bids can still be submitted. That may sound like a technicality; it is not. Finer time resolution lets the market price the actual shape of a solar curve rather than a stepped approximation of it, which means flexible resources get paid more accurately for responding at exactly the right moment.
And the phenomenon is spreading beyond Germany, which is itself informative. Spain recorded negative prices for the first time in 2024 and reached roughly six per cent of all hours in 2025. This is not a German policy quirk. It is what happens to any power system that adds large volumes of zero-marginal-cost generation faster than it adds flexibility.
Where trading houses fit in
It is worth saying plainly what a trading house does in this picture, since it is easy to assume the answer is “profit from the anomaly”.
What a trader does with a negative-price hour is mostly connect the two sides of it. A solar operator who would otherwise be exposed to those hours can be offered a contract that shapes the risk differently. An industrial consumer who could move a process into the middle of a sunny Sunday can be shown that it is worth doing and paid for doing it. A battery can be scheduled against the forward curve rather than guessed at. None of this is glamorous, and none of it creates the surplus or removes it. It moves electricity, and the risk attached to electricity, toward the participants best able to carry it — which is the whole function of the market, expressed in an unusually vivid special case.
A modest hope
We hope this essay has done two things. First, that it has made a genuinely counter-intuitive phenomenon make sense — not by explaining it away, but by showing that the paradox dissolves as soon as you ask what it costs a power station to stop. Second, that it has offered a slightly different way of reading energy headlines. A negative price is not a scandal and not a malfunction. It is a well-functioning market saying something true and uncomfortable: that we have built a great deal of clean generation, and not yet built enough of the flexibility to use all of it.
That gap is closing, and the hours when it closes fastest are precisely the ones that look most absurd on a Sunday afternoon.
If you found this useful, the other essays in the Discover Energy series look at different dimensions of the same system. How the grid transfers electrical energy from generators to your light switch. What a cold Tuesday morning in Berlin looks like from inside the market. How Europe’s gas map was redrawn after 2022. The invisible market in carbon and green certificates. We hope you read them.
For the deeper technical background on European market structure, see our European Energy Markets page. For the mechanics of trading itself, see Energy Trading Explained.