Understanding bidding strategies of intermittent renewables in negative price environments: A theoretical and empirical analysis

Abstract

Negative electricity prices have become increasingly prevalent with the growing penetration of intermittent renewable energy sources worldwide. Although it is widely thought that the negative prices are primarily driven by intermittent renewable energies, the bidding decision theory behind this phenomenon remains underexplored. This paper seeks to illuminate the bidding theory of intermittent renewables under negative electricity prices through not only a theoretical model but also an empirical analysis of its real-world counterpart. First, we propose a comprehensive intermittent renewable bidding decision model considering both forward contract and spot market, as well as income from both the energy market and green energy incentive, which significantly influence bidding behavior under negative price conditions. Next, we develop a data-driven approach to estimate the model’s embedded parameters using publicly available market data, enabling direct comparison with real-world counterparts. Finally, on the basis of the proposed model, we analyze the actual bid records in comparison to the optimal bidding decisions from three perspectives: strategy, behavior, and profit. Empirical results show that the proposed model can explain 80% of the bidding strategies employed by intermittent renewable power plants in a real-world market, including suboptimal strategies. Furthermore, some empirical evidence can help understand the intrinsic relationship between bidding rationality and negative price severity.