9 ms·

The Night They Drove the Price of Electricity Down

101 points by luu 11y ago

venning 11y ago
So, Texas constructed a market that allows it to take advantage of Federal dollars being credited to other market participants (energy providers) in the most efficient way possible. The author didn't clarify the "complicated" market, but my assumption of the highest-price-to-everyone mechanism is that ERCOT only selects a limited subgroup of all bidders each auction period, according to whatever is most economical for ERCOT. So there is some incentive to keeping your bid low. What I don't understand is how anyone who isn't benefiting from the tax credits could bid at or below zero. The author seems to indicate that wind did not meet 100% of the need during the negative price period and did not indicate anyone else was receiving tax credits beyond wind producers. So how was the highest price in the negatives? Someone had to have costs associated with the electricity they were producing within the 70% that wasn't wind-powered.
- rahimnathwani 11y ago
  "So how was the highest price in the negatives?" It's not the highest price bid. It's the highest price bid among the cheapest set of bids which could fill demand. Say we need 100 units of electricity in the next hour, and the bids are 50 units @ $2/unit, 30 units at $5, 30 units at $10, and 30 units at $20. Then, to get 100 units, you only need to buy from the first three suppliers, who are offering 110 units between them. The highest price among those is $10/unit. The 4th supplier's price is higher, but he's not among the winning bidders.
  - venning 11y ago
    That's what I'm saying. Let me rephrase within your example: How was the highest price bid among the winning bidders negative? According to the article, not all of the electricity could be provided by wind. So roughly 70% of the capacity offered by the "winning bidders" came from non-wind sources which, presumably, require positive prices to sustain themselves. How was the highest bid among those selected negative?
    - TwoBit 11y ago
      I would expect wind producers are lumped together for this, and other producers are lumped together. Just a guess.
    - Lazare 11y ago
      As noted in the article, wind power is highly variable, but other sources have the opposite problem: Slow ramp up and ramp down times. If you're running a massive coal plant (and nuclear is ten times worse), you can't just turn it off for 5 minutes if the last 5 minute auction didn't go your way. Even if you think the next 10-20 auctions won't be economical for you to win and you start the shut down process, you'll still need to get rid of that power you're generating in the meantime. What (probably) happened is that the a combination of high wind production and low demand meant the system temporarily had a surplus of power, and some (non-wind) producers actually were selling power at a loss just to get rid of it because they couldn't wind their systems down fast enough. Which is a much more interesting story than "federal government subsidies wind". Shame Slate didn't talk about it.
      - venning 11y ago
        Your point is an interesting one and leads me to an odd conclusion: the presence of wind producers in this market is not a requirement for negative prices. Assuming the author is accurately describing the market, by definition, the bids of wind producers will always account for a minority of the capacity. Which means the other 70+ percent of the supply is coming from other producers. If your explanation holds, then coal producers and the like were bidding themselves at a loss, which seems like that is a state that could happen even in the absence of wind producers. I can see how the wind producers are affecting this, but they're not a requirement. If there was a transition to considerably lower-usage electrical devices within Texas, the relative gap between demand and capacity of the existing producers would result in the same effect on the market: everyone scrambling to deal with ramp downs even at a loss. It's just that the wind farms produced that gap on the supply side instead.
        owen_griffiths 11y ago
- crdoconnor 11y ago
  >What I don't understand is how anyone who isn't benefiting from the tax credits could bid at or below zero. It's also a pretty cheap way of advertising a market opportunity and driving investors' expectations: your money would be better spent on a new aluminum smelting plant being our customers rather than a new coal or natural gas plant being our competitors. Believe it or not, in the early days, the oil industry also had this problem of "excess supply". In the UK in the 1900s they dealt with this by lobbying Winston Churchill (before he was prime minister) to shift the navy from running largely on coal to running on oil.
  - venning 11y ago
    So, intentional loss leaders? That's an interesting theory.
- azernik 11y ago
  See gizmo686's much more accurate reply on this topic.
  - venning 11y ago
    Ah, just saw it. Lazare's comment led me to the same conclusion.
rusbus 11y ago
Could this price make it to ordinary consumers? Could a consumer who was monitoring the prices consume a large quantity of power during the period to drive their on electricity bill down?
- positr0n 11y ago
  I live in Texas and I've never seen a plan more complex than a couple of tiers of prices depending on consumption, or different prices depending on the time of day (e.g. nights and weekends free). So no I don't think any residential customers have access to electricity priced in any quantity besides a month of usage.
gizmo686 11y ago
I don't think the author understands the electricity market. Negative spot prices for energy are not unique to Texas, or wind. Every energy production mechanism has a limited ability to scale production (either up or down) on demand. If you overproduce electricity, it needs somewhere to go, and the electric company is willing to pay consumers for the service of dumping the excess electricity. This is not a market inefficiency, it is a technical inefficiency, and is essentially inherent to the problem of power generation. If the cost was negative for a prolonged period of time, you would have a real story.
- strictnein 11y ago
  Worked on a project to address the problem of predicting wind power production over the short term (as in the next couple of hours). It is a very hard problem, and when I left it we had declared it successful because we were something like 10% better than the current method, which is just to assume that current production will continue. Wind power is a strange beast. A 300MW wind farm can go from 250MW to 0MW to 100MW over a 1-2 hour period. Trying to properly plan for that or ramping up/down your coal/gas plants to cover the changes is very difficult and expensive.
  - curtis 11y ago
    I'm inclined to think that wind will only work at bigger scales if we can find industrial processes that are dominated by energy costs rather than capital costs and which can scale up and down in energy consumption fast enough to track the wind output. I can think of a couple of possibilities. Water desalination is an obvious candidate. It might be economical to massively overbuild desalination plants and then only run them at peak capacity when wind is at peak as well. If the cost of electricity is much greater than the capital cost of the desalination plants, then it might be a net win when amortized over the lifetime of the plants. Generating hydrogen by electrolysis and then immediately converting it to ammonia by the Haber process might be another. The production of ammonia for use in fertilizer using methane as the hydrogen source is a major green house gas contributor. There would be a significant advantage if we could move to carbon-free production.
Animats 11y ago
This happens occasionally in the PJM control area, even without a subsidy. PJM has a lot of nuclear and hydro plants in their territory. The nuclear plants don't like to cut output at 4 AM when they'll have to crank it up at 5:30 AM; the thermal time constants in the system are too big. So they'll take an occasional hour of negative prices. Hydro Quebec sometimes has too much water, in which case they run all their generators at capacity. They, too, will take an hour of negative prices rather than closing huge steel intake gates and taking a generator out of service for an hour, only to have to go through the startup and resynch process an hour later. Wind output in the PJM area varies about 4:1 over a typical day. When peak wind lines up with minimum power demand, prices go negative, the automatic bidding system communicates back to the wind turbines, and the blades go to zero pitch, slow, and stop. The wind guys grumble about this, because some of them financed their operations without allowing for this. But it's not frequent. Wind turbines are good at shutdown and startup resynch, because they have to do it every time the wind slows down below useful speed.
afarrell 11y ago
As someone who interned at the New York ISO, the organization that operates the bulk electricity market in New York State, this article doesn't seem well researched: > Third, Texas has a unique market structure.... The article then goes on to describe a market structure that is very similar to New York ISO and ISO-New England. It is called Location Based Marginal Pricing.
- Animats 11y ago
  The article is oversimplifying, of course. PJM has most of their training materials on line.[1] Those give a sense of how PJM does it. Start with "PJM 101", "Generation Basics", and "How PJM operates and dispatches". PJM has a day-ahead market, where most of the capacity is booked a day in advance, and a real-time market, where differences from the predicted load are handled. This allows everybody involved to plan ahead a day. There's also "non-economic operation", where, in the event of big problems, the PJM control center just tells generators what to do. That's for emergencies. All generators post not just a single price, but a price/output curve. Generators also post a "ramp rate"; how fast they can ramp output up or down on request. PJM's job is to optimize all this, which happens on about a five minute cycle. There are also lots of physical constraints - transmission lines and substations can only handle so much power, and policy is to run the system so that any single failure won't take it down. After a failure, the transmission system is reconfigured to become single-point failure tolerant again. There's a control room in Valley Forge, PA, (and a backup control room somewhere else) where about ten people control the wholesale power grid. California had, briefly, a system with an spot power auction every half hour, with dealers who weren't generators or power consumers, but that was abused and produced blackouts, along with the bankruptcy of PG&E. California now has a day-ahead market and a spot market for fine tuning, like PJM, which resulted in much saner operation. So does ERCOT, the Texas grid manager. It's not a raw auction every half hour. [1] http://www.pjm.com/training/course-catalog.aspx http://www.pjm.com/training/course-catalog.aspx
Lazare 11y ago
Interesting topic; silly article. The author really wanted to use the "only in Texas" tag, but if you read closely you notice the main driving factor was a Federal subsidy; nothing at all to do with Texas. (And as other commenters have noted, other regions and countries also have occasional negative spot prices.) I'd say something snarky about "only in slate", but of course, they're hardly unique.
Asbostos 11y ago
tldr: Government subsidies for wind power production exceeded the cost of "selling" at a negative price so it was profitable for wind farms to do so.
Others 11y ago
As an aside, it annoys me when people straw-man economists. It is of little consequence, but obviously any economist who studied the situation would understand at once why producers are incentivized to do this.
rusbus 11y ago
Is there a reason the electrical plants don't short / burn off their excess electricity rather than paying consumers to use it?
- gizmo686 11y ago
  The same reason people do not take their own trash to the dump, it is cheaper for electrical plants to outsource the wasting of electricity.
  - michaelt 11y ago
    Presumably in a wind turbine you can adjust the pitch of the blades and bring the rotor to a stop. I agree that in the case of a nuclear power plant it's hard to stop generating power if the price goes negative - but if there were no subsidy presumably wind generators could switch off easily if they wanted to.
- cperciva 11y ago
  For conventional electrical generation, because disposing of large amounts of power safely is more expensive than dumping it onto the grid. For wind power, because wasting the power before it hits the grid would result in them not getting their federal green energy subsidy.
- lmm 11y ago
  At the scale we're talking about it's not trivial - the sheer amount of energy you're dumping has to go somewhere, probably turning into heat one way or the other.
- zhte415 11y ago
  It would be interesting if this could be linked with hydro, and use -ve price points to pump water into reservoirs that can release power a short notice via hydro within a few minutes of demand. Then refill at -ve price points. Using wind and gravity to make money.
  - improv32 11y ago
erikpukinskis 11y ago
This is why I bought Tesla stock. Tesla Energy is aiming to own this market.
sandworm101 11y ago
So this isn't a free market. This negative price is the result of an artificial market created by government subsidies. If someone is selling something at negative prices, then there is a business opportunity for someone to buy that product and throw it away. Someone could setup a giant space heater to do nothing more than absorb electricity. The windfarms would pay this entity to keep buying power at no cost until the price approached the subsidy. Perhaps a steel mill or aluminum smelter could be paid to fire up another furnace for no other reason than to suck up power. I'm all for free markets and green energy subsidies, but I am totally against waste. Hopefully some market actor will appear with the ability to store and resell energy. That might be homes with batteries and net metering.
- wobbleblob 11y ago
  Your giant space heater would make a tiny amount of money for an hour or so in the middle of the night, every once in a blue moon when a dip in demand and a spike in supply happen to overlap, taking advantage of the fact that the other (oil, hydro and nuclear) power plants can't power down and back up at such short notice. If this happens all the time, it will drive the average price of power down, and power hungry industries will move there, but steel mills and aluminum smelters can't move around the country at a few minutes notice.
- hectormalot 11y ago
  No. The article states that electricity is sold at the highest bid to meet the demand, and that wind was only supplying up to 40% of the demand. I.e. It is the coal and nuclear power plants that are also bidding negative. The market is working, to such an extend that during times of extreme oversupply power generators have to assess if they will temporarily turn down production (which has a cost, especially for coal/nuclear, as they are difficult to switch), or if instead they are willing to pay people to take the electricity. Yes, without subsidies, wind would probably minimum bid at a $0/MWh, but that would still leave fuel based producers running at negative marginal cost. What's missing in this market is flexible demand. I'm pretty sure if our appliances would spin up real time at low prices that it would be almost impossible to hit negative prices again, as demand will rise much more rapidly in response to lowering electricity prices.
the8472 11y ago
This is happening occasionally here in germany[1], most recently 2 weeks ago[2]. Here it's not just oversupply but also the lack of overland lines to distribute wind power from the north to the south, so we have to push it to neighboring countries instead. [1] http://energytransition.de/2014/05/german-power-prices-negative-over-weekend/ http://energytransition.de/2014/05/german-power-prices-negat... [2] https://www.epexspot.com/en/market-data/intradayauction/chart/quarter-auction-chart/2015-09-20/DE/30d https://www.epexspot.com/en/market-data/intradayauction/char...
pinaceae 11y ago
Germany with its switch to renewables is seeing the same issues. They pay the Netherlands and other neighbors to dump German surplus electricity in peak wind hours. Germany has a goal of 80% energey out of renewables by 2050, but it is entirely unclear if this is even physically possible because of this issue of spikes. Norway has it easier as it mountaineous enough to allow hydro everywhere.
bmmayer1 11y ago
Completely inaccurate headline, and they buried the lede. The real reason power producers were willing to 'sell' electricity for negative $8 per MWh, is because of a $23 federal tax credit they received per MWh. So the negative sale wasn't negative at all.
elektromekatron 11y ago
"Impossible, most economists would say. In any market—and especially in a state devoted to the free market, like Texas—makers won’t provide a product or service at a negative cost. Yet this could only have happened in Texas, which (not surprisingly) has carved out its own unique approach to electricity." Solar revolution drives negative electricity prices in Australia - http://www.businessgreen.com/bg/news/2353894/solar-revolution-drives-negative-electricity-prices-in-australia http://www.businessgreen.com/bg/news/2353894/solar-revolutio... German power prices negative over weekend - http://energytransition.de/2014/05/german-power-prices-negative-over-weekend/ http://energytransition.de/2014/05/german-power-prices-negat... Negative pricing in the GB electricity market: is the outlook positive? - http://www.baringa.com/our-thinking/baringa-blog/july-2015/negative-pricing-in-the-gb-electricity-market-is/ http://www.baringa.com/our-thinking/baringa-blog/july-2015/n... Why windy days lead to negative electricity prices - http://gelookahead.economist.com/why-windy-days-lead-to-negative-electricity-prices/ http://gelookahead.economist.com/why-windy-days-lead-to-nega... I sometimes wonder if it is a point of pride for journalists to be ignorant of the subject of their articles. edit - also, in a regulated market, one of the things that is very commonly regulated is companies offering goods or services below cost, as it is a very common tactic for manipulating markets or driving your competitors out of business.

101 points by luu 11y ago

So, Texas constructed a market that allows it to take advantage of Federal dollars being credited to other market participants (energy providers) in the most efficient way possible. The author didn't clarify the "complicated" market, but my assumption of the highest-price-to-everyone mechanism is that ERCOT only selects a limited subgroup of all bidders each auction period, according to whatever is most economical for ERCOT. So there is some incentive to keeping your bid low. What I don't understand is how anyone who isn't benefiting from the tax credits could bid at or below zero. The author seems to indicate that wind did not meet 100% of the need during the negative price period and did not indicate anyone else was receiving tax credits beyond wind producers. So how was the highest price in the negatives? Someone had to have costs associated with the electricity they were producing within the 70% that wasn't wind-powered.

rahimnathwani 11y ago
"So how was the highest price in the negatives?" It's not the highest price bid. It's the highest price bid among the cheapest set of bids which could fill demand. Say we need 100 units of electricity in the next hour, and the bids are 50 units @ $2/unit, 30 units at $5, 30 units at $10, and 30 units at $20. Then, to get 100 units, you only need to buy from the first three suppliers, who are offering 110 units between them. The highest price among those is $10/unit. The 4th supplier's price is higher, but he's not among the winning bidders.
- venning 11y ago
  That's what I'm saying. Let me rephrase within your example: How was the highest price bid among the winning bidders negative? According to the article, not all of the electricity could be provided by wind. So roughly 70% of the capacity offered by the "winning bidders" came from non-wind sources which, presumably, require positive prices to sustain themselves. How was the highest bid among those selected negative?
  - TwoBit 11y ago
    I would expect wind producers are lumped together for this, and other producers are lumped together. Just a guess.
  - Lazare 11y ago
    As noted in the article, wind power is highly variable, but other sources have the opposite problem: Slow ramp up and ramp down times. If you're running a massive coal plant (and nuclear is ten times worse), you can't just turn it off for 5 minutes if the last 5 minute auction didn't go your way. Even if you think the next 10-20 auctions won't be economical for you to win and you start the shut down process, you'll still need to get rid of that power you're generating in the meantime. What (probably) happened is that the a combination of high wind production and low demand meant the system temporarily had a surplus of power, and some (non-wind) producers actually were selling power at a loss just to get rid of it because they couldn't wind their systems down fast enough. Which is a much more interesting story than "federal government subsidies wind". Shame Slate didn't talk about it.
    - venning 11y ago
      Your point is an interesting one and leads me to an odd conclusion: the presence of wind producers in this market is not a requirement for negative prices. Assuming the author is accurately describing the market, by definition, the bids of wind producers will always account for a minority of the capacity. Which means the other 70+ percent of the supply is coming from other producers. If your explanation holds, then coal producers and the like were bidding themselves at a loss, which seems like that is a state that could happen even in the absence of wind producers. I can see how the wind producers are affecting this, but they're not a requirement. If there was a transition to considerably lower-usage electrical devices within Texas, the relative gap between demand and capacity of the existing producers would result in the same effect on the market: everyone scrambling to deal with ramp downs even at a loss. It's just that the wind farms produced that gap on the supply side instead.
      - owen_griffiths 11y ago
crdoconnor 11y ago
>What I don't understand is how anyone who isn't benefiting from the tax credits could bid at or below zero. It's also a pretty cheap way of advertising a market opportunity and driving investors' expectations: your money would be better spent on a new aluminum smelting plant being our customers rather than a new coal or natural gas plant being our competitors. Believe it or not, in the early days, the oil industry also had this problem of "excess supply". In the UK in the 1900s they dealt with this by lobbying Winston Churchill (before he was prime minister) to shift the navy from running largely on coal to running on oil.
- venning 11y ago
  So, intentional loss leaders? That's an interesting theory.
azernik 11y ago
See gizmo686's much more accurate reply on this topic.
- venning 11y ago
  Ah, just saw it. Lazare's comment led me to the same conclusion.

rusbus 11y ago

Could this price make it to ordinary consumers? Could a consumer who was monitoring the prices consume a large quantity of power during the period to drive their on electricity bill down?

positr0n 11y ago
I live in Texas and I've never seen a plan more complex than a couple of tiers of prices depending on consumption, or different prices depending on the time of day (e.g. nights and weekends free). So no I don't think any residential customers have access to electricity priced in any quantity besides a month of usage.

gizmo686 11y ago

I don't think the author understands the electricity market. Negative spot prices for energy are not unique to Texas, or wind. Every energy production mechanism has a limited ability to scale production (either up or down) on demand. If you overproduce electricity, it needs somewhere to go, and the electric company is willing to pay consumers for the service of dumping the excess electricity. This is not a market inefficiency, it is a technical inefficiency, and is essentially inherent to the problem of power generation. If the cost was negative for a prolonged period of time, you would have a real story.

strictnein 11y ago
Worked on a project to address the problem of predicting wind power production over the short term (as in the next couple of hours). It is a very hard problem, and when I left it we had declared it successful because we were something like 10% better than the current method, which is just to assume that current production will continue. Wind power is a strange beast. A 300MW wind farm can go from 250MW to 0MW to 100MW over a 1-2 hour period. Trying to properly plan for that or ramping up/down your coal/gas plants to cover the changes is very difficult and expensive.
- curtis 11y ago
  I'm inclined to think that wind will only work at bigger scales if we can find industrial processes that are dominated by energy costs rather than capital costs and which can scale up and down in energy consumption fast enough to track the wind output. I can think of a couple of possibilities. Water desalination is an obvious candidate. It might be economical to massively overbuild desalination plants and then only run them at peak capacity when wind is at peak as well. If the cost of electricity is much greater than the capital cost of the desalination plants, then it might be a net win when amortized over the lifetime of the plants. Generating hydrogen by electrolysis and then immediately converting it to ammonia by the Haber process might be another. The production of ammonia for use in fertilizer using methane as the hydrogen source is a major green house gas contributor. There would be a significant advantage if we could move to carbon-free production.

Animats 11y ago

This happens occasionally in the PJM control area, even without a subsidy. PJM has a lot of nuclear and hydro plants in their territory. The nuclear plants don't like to cut output at 4 AM when they'll have to crank it up at 5:30 AM; the thermal time constants in the system are too big. So they'll take an occasional hour of negative prices. Hydro Quebec sometimes has too much water, in which case they run all their generators at capacity. They, too, will take an hour of negative prices rather than closing huge steel intake gates and taking a generator out of service for an hour, only to have to go through the startup and resynch process an hour later. Wind output in the PJM area varies about 4:1 over a typical day. When peak wind lines up with minimum power demand, prices go negative, the automatic bidding system communicates back to the wind turbines, and the blades go to zero pitch, slow, and stop. The wind guys grumble about this, because some of them financed their operations without allowing for this. But it's not frequent. Wind turbines are good at shutdown and startup resynch, because they have to do it every time the wind slows down below useful speed.

afarrell 11y ago

As someone who interned at the New York ISO, the organization that operates the bulk electricity market in New York State, this article doesn't seem well researched: > Third, Texas has a unique market structure.... The article then goes on to describe a market structure that is very similar to New York ISO and ISO-New England. It is called Location Based Marginal Pricing.

Animats 11y ago
The article is oversimplifying, of course. PJM has most of their training materials on line.[1] Those give a sense of how PJM does it. Start with "PJM 101", "Generation Basics", and "How PJM operates and dispatches". PJM has a day-ahead market, where most of the capacity is booked a day in advance, and a real-time market, where differences from the predicted load are handled. This allows everybody involved to plan ahead a day. There's also "non-economic operation", where, in the event of big problems, the PJM control center just tells generators what to do. That's for emergencies. All generators post not just a single price, but a price/output curve. Generators also post a "ramp rate"; how fast they can ramp output up or down on request. PJM's job is to optimize all this, which happens on about a five minute cycle. There are also lots of physical constraints - transmission lines and substations can only handle so much power, and policy is to run the system so that any single failure won't take it down. After a failure, the transmission system is reconfigured to become single-point failure tolerant again. There's a control room in Valley Forge, PA, (and a backup control room somewhere else) where about ten people control the wholesale power grid. California had, briefly, a system with an spot power auction every half hour, with dealers who weren't generators or power consumers, but that was abused and produced blackouts, along with the bankruptcy of PG&E. California now has a day-ahead market and a spot market for fine tuning, like PJM, which resulted in much saner operation. So does ERCOT, the Texas grid manager. It's not a raw auction every half hour. [1] http://www.pjm.com/training/course-catalog.aspx http://www.pjm.com/training/course-catalog.aspx

Lazare 11y ago

Interesting topic; silly article. The author really wanted to use the "only in Texas" tag, but if you read closely you notice the main driving factor was a Federal subsidy; nothing at all to do with Texas. (And as other commenters have noted, other regions and countries also have occasional negative spot prices.) I'd say something snarky about "only in slate", but of course, they're hardly unique.

Asbostos 11y ago

tldr: Government subsidies for wind power production exceeded the cost of "selling" at a negative price so it was profitable for wind farms to do so.

Others 11y ago

As an aside, it annoys me when people straw-man economists. It is of little consequence, but obviously any economist who studied the situation would understand at once why producers are incentivized to do this.

rusbus 11y ago

Is there a reason the electrical plants don't short / burn off their excess electricity rather than paying consumers to use it?

gizmo686 11y ago
The same reason people do not take their own trash to the dump, it is cheaper for electrical plants to outsource the wasting of electricity.
- michaelt 11y ago
  Presumably in a wind turbine you can adjust the pitch of the blades and bring the rotor to a stop. I agree that in the case of a nuclear power plant it's hard to stop generating power if the price goes negative - but if there were no subsidy presumably wind generators could switch off easily if they wanted to.
cperciva 11y ago
For conventional electrical generation, because disposing of large amounts of power safely is more expensive than dumping it onto the grid. For wind power, because wasting the power before it hits the grid would result in them not getting their federal green energy subsidy.
lmm 11y ago
At the scale we're talking about it's not trivial - the sheer amount of energy you're dumping has to go somewhere, probably turning into heat one way or the other.
zhte415 11y ago
It would be interesting if this could be linked with hydro, and use -ve price points to pump water into reservoirs that can release power a short notice via hydro within a few minutes of demand. Then refill at -ve price points. Using wind and gravity to make money.
- improv32 11y ago

erikpukinskis 11y ago

This is why I bought Tesla stock. Tesla Energy is aiming to own this market.

sandworm101 11y ago

So this isn't a free market. This negative price is the result of an artificial market created by government subsidies. If someone is selling something at negative prices, then there is a business opportunity for someone to buy that product and throw it away. Someone could setup a giant space heater to do nothing more than absorb electricity. The windfarms would pay this entity to keep buying power at no cost until the price approached the subsidy. Perhaps a steel mill or aluminum smelter could be paid to fire up another furnace for no other reason than to suck up power. I'm all for free markets and green energy subsidies, but I am totally against waste. Hopefully some market actor will appear with the ability to store and resell energy. That might be homes with batteries and net metering.

wobbleblob 11y ago
Your giant space heater would make a tiny amount of money for an hour or so in the middle of the night, every once in a blue moon when a dip in demand and a spike in supply happen to overlap, taking advantage of the fact that the other (oil, hydro and nuclear) power plants can't power down and back up at such short notice. If this happens all the time, it will drive the average price of power down, and power hungry industries will move there, but steel mills and aluminum smelters can't move around the country at a few minutes notice.
hectormalot 11y ago
No. The article states that electricity is sold at the highest bid to meet the demand, and that wind was only supplying up to 40% of the demand. I.e. It is the coal and nuclear power plants that are also bidding negative. The market is working, to such an extend that during times of extreme oversupply power generators have to assess if they will temporarily turn down production (which has a cost, especially for coal/nuclear, as they are difficult to switch), or if instead they are willing to pay people to take the electricity. Yes, without subsidies, wind would probably minimum bid at a $0/MWh, but that would still leave fuel based producers running at negative marginal cost. What's missing in this market is flexible demand. I'm pretty sure if our appliances would spin up real time at low prices that it would be almost impossible to hit negative prices again, as demand will rise much more rapidly in response to lowering electricity prices.

the8472 11y ago

This is happening occasionally here in germany[1], most recently 2 weeks ago[2]. Here it's not just oversupply but also the lack of overland lines to distribute wind power from the north to the south, so we have to push it to neighboring countries instead. [1] http://energytransition.de/2014/05/german-power-prices-negative-over-weekend/ http://energytransition.de/2014/05/german-power-prices-negat... [2] https://www.epexspot.com/en/market-data/intradayauction/chart/quarter-auction-chart/2015-09-20/DE/30d https://www.epexspot.com/en/market-data/intradayauction/char...

pinaceae 11y ago

Germany with its switch to renewables is seeing the same issues. They pay the Netherlands and other neighbors to dump German surplus electricity in peak wind hours. Germany has a goal of 80% energey out of renewables by 2050, but it is entirely unclear if this is even physically possible because of this issue of spikes. Norway has it easier as it mountaineous enough to allow hydro everywhere.

bmmayer1 11y ago

Completely inaccurate headline, and they buried the lede. The real reason power producers were willing to 'sell' electricity for negative $8 per MWh, is because of a $23 federal tax credit they received per MWh. So the negative sale wasn't negative at all.

elektromekatron 11y ago

"Impossible, most economists would say. In any market—and especially in a state devoted to the free market, like Texas—makers won’t provide a product or service at a negative cost. Yet this could only have happened in Texas, which (not surprisingly) has carved out its own unique approach to electricity." Solar revolution drives negative electricity prices in Australia - http://www.businessgreen.com/bg/news/2353894/solar-revolution-drives-negative-electricity-prices-in-australia http://www.businessgreen.com/bg/news/2353894/solar-revolutio... German power prices negative over weekend - http://energytransition.de/2014/05/german-power-prices-negative-over-weekend/ http://energytransition.de/2014/05/german-power-prices-negat... Negative pricing in the GB electricity market: is the outlook positive? - http://www.baringa.com/our-thinking/baringa-blog/july-2015/negative-pricing-in-the-gb-electricity-market-is/ http://www.baringa.com/our-thinking/baringa-blog/july-2015/n... Why windy days lead to negative electricity prices - http://gelookahead.economist.com/why-windy-days-lead-to-negative-electricity-prices/ http://gelookahead.economist.com/why-windy-days-lead-to-nega... I sometimes wonder if it is a point of pride for journalists to be ignorant of the subject of their articles. edit - also, in a regulated market, one of the things that is very commonly regulated is companies offering goods or services below cost, as it is a very common tactic for manipulating markets or driving your competitors out of business.