MARKET COMMENTARY

As renewable energy continues to be integrated into the power system, electricity spot prices are becoming increasingly volatile, in both directions. We are seeing extreme price movements: in summer, short-term prices fall into negative territory; in winter, they spike sharply. One of these developments is no longer a seasonal side effect, but a structural feature of the changing power system. The other is mainly driven by weather and climate conditions. But first, a brief detour: what are spot prices in the first place?

The day-ahead spot market establishes, for each bidding zone, the price equilibrium between physical supply and physical demand. On the day before delivery, all market participants, from households and commercial customers to industrial consumers, forecast their consumption as well as their generation from PV, wind or gas-fired power plants, and submit the corresponding bids and offers to the power exchange.

Based on these orders, the exchange determines the clearing price for every quarter-hour of the following day. Around midday, when PV generation is high, this equilibrium price falls significantly. During periods of the well-known Dunkelflaute - prolonged low wind and little solar generation - it can rise to extraordinary levels.

The first case: negative prices

Extremely low to negative prices are an issue that regularly concerns us as critical observers of power market design. Water flowing over a weir without generating electricity is economically harmful for the system as a whole. The growing share of renewable energy in the European power mix is right and intended, but it also creates major challenges for the system. Our own calculations show that the situation will continue to intensify. For Austria, we expect around 430 hours of negative electricity prices in 2026. By 2030, this figure doubles to 900 hours, and by 2033 it rises to 1.300 hours. At the same time, the share of PV generation falling into negative-price hours increases from 18% today to more than 30% from 2031 onward. What is notable is that the average price during negative-price hours moves closer to zero in the long term. Storage expansion dampens the deepest price troughs, but it does not change the growing frequency. The problem is not getting smaller; it is becoming flatter and broader.

Power exchanges have recently responded to this development, although adjusting the minimum clearing price is more about treating symptoms than addressing causes. Under strict conditions (at least two delivery periods on at least two different days below −350 EUR/MWh) the harmonised minimum price in the day-ahead market will be lowered from −500 to −600 EUR/MWh. The reason is sobering: the previous limit was simply being reached too often. This measure does not solve the actual problem; it merely moves it 100 euros further down.

It should be a political priority to remove misaligned incentives in the system and unlock existing flexibility potential. Storage, demand response, flexible loads: all of these exist, but not at the scale required by a growing renewables-based power system. In the consultation on the System Charges Principles Ordinance, we submitted a concrete proposal: grid operators could temporarily suspend capacity charge billing. This would enable the commercial use of power-to-heat in industry, thereby substituting gas and CO₂. More initiatives are urgently needed. As long as the regulatory framework does not systematically reward the expansion of flexibility, the accumulation of extreme price events will continue, regardless of how low the exchanges set their price bands. Making surplus electricity usable is the infrastructure and regulatory task of the moment.

The fact that many market participants respond only sluggishly, or not at all, to price signals is also part of the problem. The appeal is clear: conditional orders should become standard practice not only on power exchanges, but also in the marketing of renewable energy and in electricity procurement, meaning in contracts with energy suppliers. One example: a waste-to-energy plant runs baseload. That is understandable, because the waste input process leaves little flexibility. But continuous feed-in is not mandatory. If feed-in turns into a penalty, in other words, when prices fall below zero, no operator should simply have to accept that.

The second case: very high spot prices

In the past two winters, we also saw extreme upward price spikes. While the months from November to February in winter 2023/2024 still averaged 75 EUR/MWh in Austria and Germany, average prices in the following two winters were each above 100 EUR/MWh. In Austria, winter 2025/2026 reached an average of 120 EUR/MWh. The reasons for these major differences lie mainly in weather and climate conditions. Temperature and precipitation have a significant impact on both energy demand and run-of-river hydropower generation. With the ongoing expansion of wind power, available wind generation is also becoming increasingly important. Renewable energy therefore plays a decisive role not only in negative prices, but also in extremely high spot prices.

In winter 2023/2024, onshore wind power in the EU-27 generated around 184 TWh. Despite the accelerated build-out since then, this level has not been reached again. In winter 2024/2025, generation stood at 155 TWh, down 15% compared with 2023/2024. In winter 2025/2026, it reached 165 TWh, down 11%. Besides technical issues and market-driven shutdowns caused by negative prices, the vast majority of this decline is attributable to a prolonged period of below-average wind speeds across large parts of Europe.

The key question is whether this is a lasting development or a statistical outlier. In 2025, atmospheric conditions over Europe were shaped by blocking high-pressure systems over Central and Northwestern Europe. These disrupted the westerly flow and led to stable, low-wind conditions - in winter, a typical Dunkelflaute. The cause was a northward shift in the jet stream, which moved the main storm tracks to higher latitudes. As a result, regions such as France and Germany experienced fewer and weaker low-pressure systems. For 2026, most models do not expect any noticeable improvement in wind availability, as an El Niño event is expected in summer.
The medium-term outlook suggests that the weak wind conditions of the past two years are a statistical outlier rather than a structural trend. Analyses of historical wind data for Europe from 1996 to 2025 show no significant trend in either direction. The low-wind years 2024 and 2025 are interpreted as natural climate variability. Some studies suggest slightly declining wind speeds over Europe under stronger global warming, but these findings remain subject to considerable uncertainty due to the complexity of climate interactions.

What follows from this?

The high spot prices were driven less by regulation than by weather and climate conditions, namely lower wind power generation. Negative prices, by contrast, are a direct consequence of missed adjustments to the massive PV expansion of recent years. The transformation of the power system is fully under way, and policymakers must create the conditions to make surplus electricity usable through flexibility technologies. The energy industry, for its part, must do its homework and make conditional orders standard practice.

Current spot prices show just how relevant these structural issues remain. On the German spot market, the weekly average at the end of May stood at 94,90 EUR/MWh, and June is starting at an even higher level. The decisive factor is weak expected wind generation, at only around 82% of the seasonal norm. May 2026 is also an exception in year-on-year comparison. In 2025, May was still the cheapest month of the year, with an average price of 67,34 EUR/MWh. In 2024, prices were at a similar level. In 2026, however, May reached a remarkable 97,54 EUR/MWh, 45% above the previous years and the highest May price ever, if the crisis year 2022 is excluded. In addition to weak wind supply, below-average hydrology is also weighing on price levels. The global energy market situation adds further pressure: futures markets are currently showing little movement, with prices remaining elevated as market participants wait for a possible agreement between the United States and Iran. The more likely an agreement appears, the more prices tend to move downward; the more disruptions become public, the greater the upward pressure.

Matthias Kisslinger
For the Inercomp team