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I think you're missing the critical piece of your explanation of why negative prices aren't good for consumers: The reason that negative power prices look like

by adrusi 9y ago

I think you're missing the critical piece of your explanation of why negative prices aren't good for consumers: The reason that negative power prices look like they would be good for consumers is that it seems like they should lower their monthly bills. But in practice their bill should stay the same, even if there were significant periods during which energy prices were negative. Why? The negative prices don't indicate that the cost of power production is negative for the power company, so the power company is losing money. The power company has to recoup those losses somehow, and they do it by charging more when power prices are positive. In order to take advantage of negative power prices, a power consumer would have to dynamically increase their power consumption in response to the negative prices. If they have any significant power storage capacity, maybe they could store power and sell it back to the grid when prices go positive, or maybe turn on their mining rig while prices are negative, if they go negative frequently.

rayiner 9y ago
All energy costs a positive amount of dollars to produce. Thus, in the long run, the price of electricity must be such that generators recoup their fixed costs, recoup their variable costs, and make some profit that makes the whole endeavor worthwhile. In an ideal grid, the price of electricity would be a stable amount that hovered around this long-run price.[1] If battery technology was up to par, generators would place batteries between their plants and the grid, and deliver electricity at a predictable rate, which would keep the price stable. Negative rates that deviate dramatically from this price are the sign of a grid in distress. Even though individual consumers might be able to take advantage of these periods of negative rates, that doesn't mean its good news for consumers as a class. It's like when the power company pays electricity users to shut down during demand spikes. Yes, consumers that can throttle demand during spikes can make money from such events. But if you're seeing the price of electricity spike frequently, that's a sign of something wrong with the grid, not a positive thing for consumers. [1] This is a simplification, because there's actually more than one energy market involved that generators use to recoup their costs: https://www.bateswhite.com/media/publication/55_media.741.pdf https://www.bateswhite.com/media/publication/55_media.741.pd.... But it's easier to explain assuming one market and one price.
- saosebastiao 9y ago
  > All energy costs a positive amount of dollars to produce. Thus, in the long run, the price of electricity must be such that generators recoup their fixed costs, recoup their variable costs, and make some profit that makes the whole endeavor worthwhile. The only type of cost that strictly determines a price floor is the variable cost. Recuperating fixed costs and profits are based on a revenue prediction which may or may not come true, but once the investment is made it rationally operates until prices descend past the variable cost barrier, regardless of whether long term ROI is positive or not. What I don’t understand is why prices must go negative. A price of zero should be enough to turn off capacity, modulo switching costs (the cost to start or stop a turbine?)
  - rayiner 9y ago
    > The only type of cost that strictly determines a price floor is the variable cost. Recuperating fixed costs and profits are based on a revenue prediction which may or may not come true, but once the investment is made it rationally operates until prices descend past the variable cost barrier, regardless of whether long term ROI is positive or not. Only variable costs will drive the short-term decision of whether to stay on or not. But the price of electricity in relation to fixed costs and profit will factor into the long-term decisions regarding building new plants and decommissioning ones that need refurbishment/upgrades. In the long run, the price of electricity has to be high enough to ensure sufficient capacity to meet demand. (That's something of a simplification, as I said. In reality, the incentive for building new capacity comes from both the electricity market, and so-called capacity markets: https://business.directenergy.com/understanding-energy/managing-energy-costs/deregulation-and-energy-pricing/capacity-markets. https://business.directenergy.com/understanding-energy/manag...) > What I don’t understand is why prices must go negative. A price of zero should be enough to turn off capacity, modulo switching costs (the cost to start or stop a turbine?) It can take a coal plant ~4-8 hours to reach maximum output after even a warm restart.
  - apendleton 9y ago
    Many kinds of power generation can't be easily started and stopped (nuclear, say). It might be cheaper to create an incentive for someone to use your excess power for a short period than it is to absorb the cost of a long shutdown and restart.
another-one-off 9y ago
I'll just add in some empirical results. German power has risen to be some of the most expensive in Europe since they started the Energiewende. They have very low wholesale prices (driving the coal producers out of business) combined with very high retail prices (might be top 3 in Europe?). The high retail price appears to be driven by the mechanisms driving the Energiewende ie transition to wind and solar. https://www.cleanenergywire.org/factsheets/what-german-households-pay-power https://www.cleanenergywire.org/factsheets/what-german-house... https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html https://www.ovoenergy.com/guides/energy-guides/average-elect...
- cabaalis 9y ago
  The NYT article reads as though Germany is benefiting from the switch to renewables, and that the only problems are that sometimes there's so much power around that they have to pay people to use it. It mentions high cost of electricity, and that it's due to fees and "renewable investment costs" but then immediately hand-waves that away because "household energy bills have been rising over all anyway." When combined with your information above (those hand-wavy fees actually account for fully 50% of the costs, with 24% being the renewables surcharge) it would seem that the NYT is being misleading. It seems they want to convey the idea that the renewables are an immediate good thing for everyone (which I do not take issue with politically) while downplaying the significant costs to consumers. Am I missing something? If I'm not, then this does nothing but contribute to the current view of American media as being intentionally misleading when it suits their interests.
  - chiefalchemist 9y ago
    Perhaps. But the price of oil is manipulated and subsidized as well.
    - JanSt 9y ago
      I'm not aware of the US-situation, but as this article is about Germany, I can tell you that 2/3 of the german oil price are taxes. We usually pay $6-7 per gallon.
runeks 9y ago
> If they have any significant power storage capacity, maybe they could store power and sell it back to the grid when prices go positive, or maybe turn on their mining rig while prices are negative, if they go negative frequently. There’s no reason to get so sophisticated: just plug in an electrical heater placed outside, and get paid. A negative price is a perverse incentive — unless we want to get rid of whatever thing is priced in the negative.
- Filligree 9y ago
  Which is precisely what we want to do. As mentioned elsewhere, negative prices happen when load is too low and artificially creating load is cheaper than making generators shut down. It's an uncommon situation, because if it keeps happening then the power plant will indeed invest in giant heaters.
- chii 9y ago
  > just plug in an electrical heater placed outside while that's cheap, it feels like a large waste of energy that could've been used for something useful.
  - runeks 9y ago
    I agree with you, but this is the incentive you create when pricing stuff in the negative.
chiefalchemist 9y ago
Well, if there was some reasonable way to predict the negative prices ppl could do laundry, dishes, perhaps crank up the hot water heater (which is a form of energy storage), or charge the car in full. Yes, all minor but at scale hardly negligible. Certainly better than nothing.
- spyhi 9y ago
  Seems like a great IoT opportunity. Smart-appliances that are able to detect prices on a public energy marketplace, or receive a signal from energy companies, so that they can turn on their high-energy processes when the grid needs some evening out.
  - OtterCoder 9y ago
    This is the first real potential application I've ever seen for connected appliances.
    - spyhi 9y ago
      Same. I've generally been pretty bearish on IoT appliances since the usual features seem to be a) contrived, b) net inconveniences, and/or c) primarily of benefit to commercial entities rather than consumers (i.e. buy milk reminders). This, on the other hand, is something that's difficult to do without automation and is pretty beneficial to everyone involved--the more I think of it, the more I like it. Really hope as negative energy costs become more of a "problem" we see manufacturers start drifting towards this use case.
      - chiefalchemist 9y ago
        But can't we adobt some habits now? That is, for example, is electricity is cheaper in the evening only do wash after 7pm. I understand that's not as easy as automatic. But manual also forces us to embrace "the din of awareness" such that green-thinking is who we are, and not something we "outsource" so we have more time and energy to consume.

by adrusi 9y ago

rayiner 9y ago

All energy costs a positive amount of dollars to produce. Thus, in the long run, the price of electricity must be such that generators recoup their fixed costs, recoup their variable costs, and make some profit that makes the whole endeavor worthwhile. In an ideal grid, the price of electricity would be a stable amount that hovered around this long-run price.[1] If battery technology was up to par, generators would place batteries between their plants and the grid, and deliver electricity at a predictable rate, which would keep the price stable. Negative rates that deviate dramatically from this price are the sign of a grid in distress. Even though individual consumers might be able to take advantage of these periods of negative rates, that doesn't mean its good news for consumers as a class. It's like when the power company pays electricity users to shut down during demand spikes. Yes, consumers that can throttle demand during spikes can make money from such events. But if you're seeing the price of electricity spike frequently, that's a sign of something wrong with the grid, not a positive thing for consumers. [1] This is a simplification, because there's actually more than one energy market involved that generators use to recoup their costs: https://www.bateswhite.com/media/publication/55_media.741.pdf https://www.bateswhite.com/media/publication/55_media.741.pd.... But it's easier to explain assuming one market and one price.

saosebastiao 9y ago
> All energy costs a positive amount of dollars to produce. Thus, in the long run, the price of electricity must be such that generators recoup their fixed costs, recoup their variable costs, and make some profit that makes the whole endeavor worthwhile. The only type of cost that strictly determines a price floor is the variable cost. Recuperating fixed costs and profits are based on a revenue prediction which may or may not come true, but once the investment is made it rationally operates until prices descend past the variable cost barrier, regardless of whether long term ROI is positive or not. What I don’t understand is why prices must go negative. A price of zero should be enough to turn off capacity, modulo switching costs (the cost to start or stop a turbine?)
- rayiner 9y ago
  > The only type of cost that strictly determines a price floor is the variable cost. Recuperating fixed costs and profits are based on a revenue prediction which may or may not come true, but once the investment is made it rationally operates until prices descend past the variable cost barrier, regardless of whether long term ROI is positive or not. Only variable costs will drive the short-term decision of whether to stay on or not. But the price of electricity in relation to fixed costs and profit will factor into the long-term decisions regarding building new plants and decommissioning ones that need refurbishment/upgrades. In the long run, the price of electricity has to be high enough to ensure sufficient capacity to meet demand. (That's something of a simplification, as I said. In reality, the incentive for building new capacity comes from both the electricity market, and so-called capacity markets: https://business.directenergy.com/understanding-energy/managing-energy-costs/deregulation-and-energy-pricing/capacity-markets. https://business.directenergy.com/understanding-energy/manag...) > What I don’t understand is why prices must go negative. A price of zero should be enough to turn off capacity, modulo switching costs (the cost to start or stop a turbine?) It can take a coal plant ~4-8 hours to reach maximum output after even a warm restart.
- apendleton 9y ago
  Many kinds of power generation can't be easily started and stopped (nuclear, say). It might be cheaper to create an incentive for someone to use your excess power for a short period than it is to absorb the cost of a long shutdown and restart.

another-one-off 9y ago

I'll just add in some empirical results. German power has risen to be some of the most expensive in Europe since they started the Energiewende. They have very low wholesale prices (driving the coal producers out of business) combined with very high retail prices (might be top 3 in Europe?). The high retail price appears to be driven by the mechanisms driving the Energiewende ie transition to wind and solar. https://www.cleanenergywire.org/factsheets/what-german-households-pay-power https://www.cleanenergywire.org/factsheets/what-german-house... https://www.ovoenergy.com/guides/energy-guides/average-electricity-prices-kwh.html https://www.ovoenergy.com/guides/energy-guides/average-elect...

cabaalis 9y ago
The NYT article reads as though Germany is benefiting from the switch to renewables, and that the only problems are that sometimes there's so much power around that they have to pay people to use it. It mentions high cost of electricity, and that it's due to fees and "renewable investment costs" but then immediately hand-waves that away because "household energy bills have been rising over all anyway." When combined with your information above (those hand-wavy fees actually account for fully 50% of the costs, with 24% being the renewables surcharge) it would seem that the NYT is being misleading. It seems they want to convey the idea that the renewables are an immediate good thing for everyone (which I do not take issue with politically) while downplaying the significant costs to consumers. Am I missing something? If I'm not, then this does nothing but contribute to the current view of American media as being intentionally misleading when it suits their interests.
- chiefalchemist 9y ago
  Perhaps. But the price of oil is manipulated and subsidized as well.
  - JanSt 9y ago
    I'm not aware of the US-situation, but as this article is about Germany, I can tell you that 2/3 of the german oil price are taxes. We usually pay $6-7 per gallon.

runeks 9y ago

> If they have any significant power storage capacity, maybe they could store power and sell it back to the grid when prices go positive, or maybe turn on their mining rig while prices are negative, if they go negative frequently. There’s no reason to get so sophisticated: just plug in an electrical heater placed outside, and get paid. A negative price is a perverse incentive — unless we want to get rid of whatever thing is priced in the negative.

Filligree 9y ago
Which is precisely what we want to do. As mentioned elsewhere, negative prices happen when load is too low and artificially creating load is cheaper than making generators shut down. It's an uncommon situation, because if it keeps happening then the power plant will indeed invest in giant heaters.
chii 9y ago
> just plug in an electrical heater placed outside while that's cheap, it feels like a large waste of energy that could've been used for something useful.
- runeks 9y ago
  I agree with you, but this is the incentive you create when pricing stuff in the negative.

chiefalchemist 9y ago

Well, if there was some reasonable way to predict the negative prices ppl could do laundry, dishes, perhaps crank up the hot water heater (which is a form of energy storage), or charge the car in full. Yes, all minor but at scale hardly negligible. Certainly better than nothing.

spyhi 9y ago
Seems like a great IoT opportunity. Smart-appliances that are able to detect prices on a public energy marketplace, or receive a signal from energy companies, so that they can turn on their high-energy processes when the grid needs some evening out.
- OtterCoder 9y ago
  This is the first real potential application I've ever seen for connected appliances.
  - spyhi 9y ago
    Same. I've generally been pretty bearish on IoT appliances since the usual features seem to be a) contrived, b) net inconveniences, and/or c) primarily of benefit to commercial entities rather than consumers (i.e. buy milk reminders). This, on the other hand, is something that's difficult to do without automation and is pretty beneficial to everyone involved--the more I think of it, the more I like it. Really hope as negative energy costs become more of a "problem" we see manufacturers start drifting towards this use case.
    - chiefalchemist 9y ago
      But can't we adobt some habits now? That is, for example, is electricity is cheaper in the evening only do wash after 7pm. I understand that's not as easy as automatic. But manual also forces us to embrace "the din of awareness" such that green-thinking is who we are, and not something we "outsource" so we have more time and energy to consume.