Power Worth Less Than Zero
Wind And Solar Farms Are Flooding The Electrical Grid More And More
With wind and solar farms sprouting up in more areas power prices have been slipping to zero or even below more often and in more jurisdictions. With the sub-zero cost of electricity becoming a reality for hundreds of hours in many markets it is becoming a major headache for utilities struggling to earn a return on traditional power plants; upending the economics of the business in the process. Green Power is getting priority to feed into the grid in many places resulting in the amount of electricity being generated outstripping demand during certain hours of the day.
Periods with negative prices occur when there is more supply than demand, typically during a mid-day sun burst or early morning wind gust when demand is already low. A negative price is essentially a market signal telling utilities to shut down certain power plants. It doesn’t result in anyone getting a refund on bills — or in electric meters running backward. What occurs instead is owners of traditional coal and gas plants shut down production for a period even though many of the facilities aren’t designed to switch on and off quickly.
“Energy market price signals are critical to telling generators where to build new resources. As negative prices become more prevalent, we’ll have to evolve our energy market price formation strategies to ensure that we will continue to drive efficient investment.”
Abe Silverman, deputy general council at NRG Energy
In most U.S. markets, negative pricing only occurs when real-time power deliveries drop below expectations from the previous day or when supplies come in greater than forecast. The one exception is California, which had 110 hours with negative prices in its day-ahead market. Prices in California’s day-ahead market are determined in auction one day prior to delivery. They can drop below zero during midday hours when there are high levels of solar generation and solid output from hydroelectric plants.
Going forward smaller and more nimble units – Peaker Plants – as opposed to the traditional generation units will hold a key to smoothing out the most uncomfortable fluctuations in the market. Peaker plants can help the system cope with big swings in output from renewables.