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The part about renewables suppressing prices is already and has been a thing for awhile. We even see $0 prices in some market intervals because wind is so highl

The part about renewables suppressing prices is already and has been a thing for awhile. We even see $0 prices in some market intervals because wind is so highly subsidized. This causes some issues as the market prices don't reflect the actual need.

acidburnNSA 8y ago
It often goes negative, which is really backwards. This pulls the rug out from generators that don't like to reduce in power because fuel is a small fraction of their cost. Good old production tax credits.
ip26 8y ago
You don't need subsidies for the price to hit $0. The power must be removed from the grid.
- 4thaccount 8y ago
  That is not true. Where are you getting this from? Maybe I misunderstand you. Low prices generally come from when you have a very low marginal price (often because a windfarm can put in a $0 offer and still make a profit due to subsidies). Note that I'm not against the production tax credits, but the market distortions are very real and can impact decisions to build more generation.
  - 7952 8y ago
    Surely in a free market the cost of renewables would just track fuel prices. You would have to sell your renewable energy for slightly less than the cheapest fuel based source. That would make it very difficult to get finance because the rate of return would be unpredictable. So in a market dominated by unpredictable fossil fuel generation it makes sense to set a minimum price. And the government has to act as the buyer who agrees a price ahead of time.
    - jgamman 8y ago
      it's a market - the operator will order dispatch to meet demand. they add up all the offers cheapest to most expensive and figure out who the last unit dispatched will be. if your price offer is over theirs you don't get to inject into the grid and don't get paid. That's why prices tend to $0 if you _have_ to dispatch. Those at the margin run at a loss for a while and then make it up later.
      - 4thaccount 8y ago
        That is the very simplistic explanation for prices that is great when talking to those that don't work in the industry, but in reality the impact of congestion and losses also factors into the prices as well as reserves in most markets (sometimes the impact is huge). Also, the adding up of offers from cheapest to most expensive doesn't actually happen. In reality, there is complex OR software running an optimization algorithm behind the scenes. I fully agree though that what you're saying is fine from a conceptual point of view. This is how it was done a long time ago btw, but that was indeed long ago. I'm talking about the US markets btw... I'm sure some place in the world still uses the method you refer too.
        jabl 8y ago
        What is then a good market design for a decarbonized grid consisting of mostly ~zero marginal cost producers like wind, solar, hydro and nuclear? Seems dispatching on marginal cost doesn't make sense in such a world?
        4thaccount 8y ago
        Bingo! This very subject is being discussed in industry. However, it's important to point out that we're still pretty far from 100% renewables throughout the day. Both the ERCOT & SPP markets have had renewables as a percentage of load as greater than 50%, but that is generally during the night with low load and high wind. I'm not sure what markets will look like in 20 years, but they could be very different if we have 100% renewables and a high amount of grid level storage.
  - chronial 8y ago
    See here for a detailed explanation: https://www.cleanenergywire.org/factsheets/why-power-prices-turn-negative https://www.cleanenergywire.org/factsheets/why-power-prices-... Here's an excerpt: > There are several reasons why conventional power station operators, which are either losing money or at least losing profit during times of negative prices, keep their plants running (See study by Energy Brainpool, page 4-5 and the 2016 results from Consentec). They can be technical, for example the power plant can be too inflexible to change its output, or the ramping or costs for shutting down and starting up can be too expensive. Another reason for keeping the plant running can be the obligation to provide contracted balancing power to keep the grid stable or provide re-dispatch power. Alternatively, it may be that a certain production has to be kept up to provide heat for a town household heating network. Those plant operators which have already sold their power at the longer term futures market face no extra costs when they let their units run – they are merely losing the profit that they could make by buying cheap power to supply their customers instead of producing their own.
    - 4thaccount 8y ago
      No disagreement. There are a lot of unit characteristics such as the minimum amount of time for how long the unit can be online. This was also good at pointing out long term contracts and agreements that are not seen by the market.
  - hwillis 8y ago
    Wind can put electricity on the market even without subsidies. They have every incentive to do so, since it costs them absolutely nothing to put energy into the grid while forcing fossil fuels to pay a premium. If the government didn't subsidize renewables when the grid is oversupplied, then other resources would pay them anyway. Prices would even go negative as transients would still exist. Since the subsidies are far less than the premium made by fossil peaker plants, renewable resources are still the first to turn off and the time difference is negligible. Not to mention that in most countries the subsidies are by FAR the least distorting legislation. Most often (eg the US) renewables get first bid on contracts. That means they are guaranteed to sell their electricity even if the price goes negative; the onus is on fossil plants to turn off. This is a dumb, possibly unnecessary bit of rule. It ensures renewables are used, but it means they aren't well utilized as peaker resources. Renewables are orders of magnitude better for the grid than any other type of generation, but if they wanted they would never be used for anything but baseload.
  - ip26 8y ago
    In addition to the other replies to you, my understanding- low prices come from a glut, simple as that. If the wind is blowing strongly at night, or the sun is shining especially brightly, there can be an excess of power, so much that there isn't enough demand to remove that power from the grid (which would damage it). Fossil fuels have input costs, but wind & solar have zero or nearly zero operating cost, and shutting them down incurs cost. So while fossil fuel is hurting, they are happy to sell power for $0 for a few hours if that's what it takes to get someone to take it off their hands. IMO it basically looks like what you'd expect to see in a market in need of storage operations to perform arbitrage & smooth the price curve.
    - Symmetry 8y ago
      Or someone who has some power intensive but not capital intensive project ready to go for when electricity is cheap. Splitting water for future generation of ammonia or methane, say.
      - aidenn0 8y ago
        Aluminum smelting is the poster child for this; ~14MWh per ton of aluminum produced; managing electricity costs is the primary business of Alcoa.
    - 4thaccount 8y ago
      No, that is a simplistic explanation that misses the key concept. When you have a power "glut" you generally aren't decommiting many resources unless your commitment and forecast were insanely off. What happens is that the more expensive resources are sent to their minimum and are therefore no longer setting price. At that point, the cheapest units (wind and solar) are then setting price. No energy market in the US has logic to say "I don't need anymore and will then just go to zero". The linear programming problem is still looking at the cost to balance power and load (put simplistically). Storage will help solve some issues, but will likely not be the short-term panacea people are making it out to be.
philipkglass 8y ago
This is why I think that the solar investment tax credit is better than the wind production tax credit. The wind PTC pays $23 per megawatt-hour generated in the first 10 years of a wind generator's life, regardless of demand at the time of generation. The solar ITC is a 30% tax credit for building new solar plants, but built plants still have to find positive-price buyers for their output to be profitable. The ITC encourages the development of clean generation without introducing any negative-pricing scenarios. During times of high output and low demand solar plants may bid prices very close to zero, but they won't go below zero. That encourages better matching of new renewable capacity with actual demand.
hinkley 8y ago
It’s a sad bit of economic reality to me that you can relocate computers with a good bit of flexibility, but you can’t afford to have them sitting around doing nothing for half the day. If I built a data center near a wind farm I couldn’t afford to just turn the servers off when the wind dies down. I have to run them all day and site based on average cost and availability.

acidburnNSA 8y ago

It often goes negative, which is really backwards. This pulls the rug out from generators that don't like to reduce in power because fuel is a small fraction of their cost. Good old production tax credits.

ip26 8y ago

You don't need subsidies for the price to hit $0. The power must be removed from the grid.

4thaccount 8y ago
That is not true. Where are you getting this from? Maybe I misunderstand you. Low prices generally come from when you have a very low marginal price (often because a windfarm can put in a $0 offer and still make a profit due to subsidies). Note that I'm not against the production tax credits, but the market distortions are very real and can impact decisions to build more generation.
- 7952 8y ago
  Surely in a free market the cost of renewables would just track fuel prices. You would have to sell your renewable energy for slightly less than the cheapest fuel based source. That would make it very difficult to get finance because the rate of return would be unpredictable. So in a market dominated by unpredictable fossil fuel generation it makes sense to set a minimum price. And the government has to act as the buyer who agrees a price ahead of time.
  - jgamman 8y ago
    it's a market - the operator will order dispatch to meet demand. they add up all the offers cheapest to most expensive and figure out who the last unit dispatched will be. if your price offer is over theirs you don't get to inject into the grid and don't get paid. That's why prices tend to $0 if you _have_ to dispatch. Those at the margin run at a loss for a while and then make it up later.
    - 4thaccount 8y ago
      That is the very simplistic explanation for prices that is great when talking to those that don't work in the industry, but in reality the impact of congestion and losses also factors into the prices as well as reserves in most markets (sometimes the impact is huge). Also, the adding up of offers from cheapest to most expensive doesn't actually happen. In reality, there is complex OR software running an optimization algorithm behind the scenes. I fully agree though that what you're saying is fine from a conceptual point of view. This is how it was done a long time ago btw, but that was indeed long ago. I'm talking about the US markets btw... I'm sure some place in the world still uses the method you refer too.
      - jabl 8y ago
        What is then a good market design for a decarbonized grid consisting of mostly ~zero marginal cost producers like wind, solar, hydro and nuclear? Seems dispatching on marginal cost doesn't make sense in such a world?
        4thaccount 8y ago
        Bingo! This very subject is being discussed in industry. However, it's important to point out that we're still pretty far from 100% renewables throughout the day. Both the ERCOT & SPP markets have had renewables as a percentage of load as greater than 50%, but that is generally during the night with low load and high wind. I'm not sure what markets will look like in 20 years, but they could be very different if we have 100% renewables and a high amount of grid level storage.
- chronial 8y ago
  See here for a detailed explanation: https://www.cleanenergywire.org/factsheets/why-power-prices-turn-negative https://www.cleanenergywire.org/factsheets/why-power-prices-... Here's an excerpt: > There are several reasons why conventional power station operators, which are either losing money or at least losing profit during times of negative prices, keep their plants running (See study by Energy Brainpool, page 4-5 and the 2016 results from Consentec). They can be technical, for example the power plant can be too inflexible to change its output, or the ramping or costs for shutting down and starting up can be too expensive. Another reason for keeping the plant running can be the obligation to provide contracted balancing power to keep the grid stable or provide re-dispatch power. Alternatively, it may be that a certain production has to be kept up to provide heat for a town household heating network. Those plant operators which have already sold their power at the longer term futures market face no extra costs when they let their units run – they are merely losing the profit that they could make by buying cheap power to supply their customers instead of producing their own.
  - 4thaccount 8y ago
    No disagreement. There are a lot of unit characteristics such as the minimum amount of time for how long the unit can be online. This was also good at pointing out long term contracts and agreements that are not seen by the market.
- hwillis 8y ago
  Wind can put electricity on the market even without subsidies. They have every incentive to do so, since it costs them absolutely nothing to put energy into the grid while forcing fossil fuels to pay a premium. If the government didn't subsidize renewables when the grid is oversupplied, then other resources would pay them anyway. Prices would even go negative as transients would still exist. Since the subsidies are far less than the premium made by fossil peaker plants, renewable resources are still the first to turn off and the time difference is negligible. Not to mention that in most countries the subsidies are by FAR the least distorting legislation. Most often (eg the US) renewables get first bid on contracts. That means they are guaranteed to sell their electricity even if the price goes negative; the onus is on fossil plants to turn off. This is a dumb, possibly unnecessary bit of rule. It ensures renewables are used, but it means they aren't well utilized as peaker resources. Renewables are orders of magnitude better for the grid than any other type of generation, but if they wanted they would never be used for anything but baseload.
- ip26 8y ago
  In addition to the other replies to you, my understanding- low prices come from a glut, simple as that. If the wind is blowing strongly at night, or the sun is shining especially brightly, there can be an excess of power, so much that there isn't enough demand to remove that power from the grid (which would damage it). Fossil fuels have input costs, but wind & solar have zero or nearly zero operating cost, and shutting them down incurs cost. So while fossil fuel is hurting, they are happy to sell power for $0 for a few hours if that's what it takes to get someone to take it off their hands. IMO it basically looks like what you'd expect to see in a market in need of storage operations to perform arbitrage & smooth the price curve.
  - Symmetry 8y ago
    Or someone who has some power intensive but not capital intensive project ready to go for when electricity is cheap. Splitting water for future generation of ammonia or methane, say.
    - aidenn0 8y ago
      Aluminum smelting is the poster child for this; ~14MWh per ton of aluminum produced; managing electricity costs is the primary business of Alcoa.
  - 4thaccount 8y ago
    No, that is a simplistic explanation that misses the key concept. When you have a power "glut" you generally aren't decommiting many resources unless your commitment and forecast were insanely off. What happens is that the more expensive resources are sent to their minimum and are therefore no longer setting price. At that point, the cheapest units (wind and solar) are then setting price. No energy market in the US has logic to say "I don't need anymore and will then just go to zero". The linear programming problem is still looking at the cost to balance power and load (put simplistically). Storage will help solve some issues, but will likely not be the short-term panacea people are making it out to be.

philipkglass 8y ago

This is why I think that the solar investment tax credit is better than the wind production tax credit. The wind PTC pays $23 per megawatt-hour generated in the first 10 years of a wind generator's life, regardless of demand at the time of generation. The solar ITC is a 30% tax credit for building new solar plants, but built plants still have to find positive-price buyers for their output to be profitable. The ITC encourages the development of clean generation without introducing any negative-pricing scenarios. During times of high output and low demand solar plants may bid prices very close to zero, but they won't go below zero. That encourages better matching of new renewable capacity with actual demand.

hinkley 8y ago

It’s a sad bit of economic reality to me that you can relocate computers with a good bit of flexibility, but you can’t afford to have them sitting around doing nothing for half the day. If I built a data center near a wind farm I couldn’t afford to just turn the servers off when the wind dies down. I have to run them all day and site based on average cost and availability.