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Executive Summary (drastically oversimplified): In a wholesale electricity market we have a market operator who estimates the demand for the near term future a

Executive Summary (drastically oversimplified): In a wholesale electricity market we have a market operator who estimates the demand for the near term future and opens the market up to bids for supply. Suppliers bid a certain capacity for each period, with the operator typically accepting firm supply offers, contingency supply offers, and ancillary service offers in advance. Since some suppliers are “baseload” (ie: unable to adjust output to suit the current level of demand) they will typically bid low to always be paid for their supply. Everyone else will be affected by these bids because the “baseload” operators are typically not only inflexible but also have huge capacity. In periods where total demand is low relative to total supply capacity, the wholesale bids will drop to low prices. For the baseload suppliers, they would prefer to pay for someone to use their excess power rather than damage their equipment by either turning it off or reducing output below certain minimums. A baseload supplier might, for example, be facing a maintenance cost of a million dollars versus paying the market a hundred thousand to create extra demand for surplus energy. So rather than turn off equipment they will bid negative prices on the wholesale market. A second cause of negative wholesale prices is established players with large war chests waging economic war against new entrants. They know solar farms have razor thin margins, so it is worth spending a few tens of million dollars to drive the solar farm bankrupt. Enough negative pricing periods during peak solar capacity means the solar farm is not making any money. If the baseload operator knows roughly the breakeven point for the solar farm, they will know how much they have to spend in order to shut the solar farm out of the market and bankrupt them. There are no rules against this kind of activity in the Australian energy market.

steve_gh 7y ago
And what happens when a solar farm goes bankrupt? Its major operating overhead is servicing the loans for the initial capital cost. So all that will happen is that the bank will take possession of the solar farm. It will still be producing cheap power, and it will now be owned by an organisation with very deep pockets!
JMTQp8lwXL 7y ago
Why do they have to pay someone to take the electricity? I could take a dollar bill and rip it in half (perhaps not legally, but besides the point). I understand there's costs to shutting down a system. So, they might keep it running. But what I don't get: the electricity producer has to pay someone to take the excess electricity off their hands? The producer can't route the excess to, well... nowhere?
- Scarblac 7y ago
  No, electricity can't be routed to nowhere, that's not how the grid works. The amount produced and the amount used have to stay in balance. There is a bit of leeway in that turbine power stations will run a little bit slower or faster depending on exact use (resulting in a grid frequency a little bit faster or slower than 50Hz) but the difference has to be made up quickly. (not an expert, this is badly remembered from Internet articles so probably hurts to read for real experts, I'm sorry. But I hope I got the gist sort of right.)
- james_s_tayler 7y ago
  If I remember correctly there are rules that the estimated demand and actual generation have to match pretty closely and the overage can only be within a few percent tolerance. You're not allowed to just generate electricity that there isn't demand for.
- viraptor 7y ago
  Not at that levels of output. With large enough machines it's "we're going to spend X to spin everything down, do maintenance checks, spin back up" vs "we're going to pay you X/2 so you take the output and we can keep going". The X may be spent on extra workers, on extra maintenance, on replacement for posts that wear out faster, etc. It's the cost of unusual operation. And once you're generating there's no great way to just "disconnect" in many cases. If you disconnect the load, the charge still has to go somewhere. Preferably not into nearby equipment. Even the safety switches are non-trivial when dealing with high power - if you break a cable connection, the electric arc will still keep them connected.
  - gumby 7y ago
    Some baseload devices can’t really be realistically switched off. Some of these turbines run for decades.
  - Udik 7y ago
    This makes me wonder how do you stop generating with a solar farm that is made of PV panels. They're entirely passive, right? The light hits them and they output electricity. How do you stop them? I guess the process is somehow invertible, and once reached a certain static charge each panel stops absorbing energy? In which case you're sort of already dumping the (non)produced energy in the environment- as heat, on each single panel?

steve_gh 7y ago

And what happens when a solar farm goes bankrupt? Its major operating overhead is servicing the loans for the initial capital cost. So all that will happen is that the bank will take possession of the solar farm. It will still be producing cheap power, and it will now be owned by an organisation with very deep pockets!

JMTQp8lwXL 7y ago

Why do they have to pay someone to take the electricity? I could take a dollar bill and rip it in half (perhaps not legally, but besides the point). I understand there's costs to shutting down a system. So, they might keep it running. But what I don't get: the electricity producer has to pay someone to take the excess electricity off their hands? The producer can't route the excess to, well... nowhere?

Scarblac 7y ago
No, electricity can't be routed to nowhere, that's not how the grid works. The amount produced and the amount used have to stay in balance. There is a bit of leeway in that turbine power stations will run a little bit slower or faster depending on exact use (resulting in a grid frequency a little bit faster or slower than 50Hz) but the difference has to be made up quickly. (not an expert, this is badly remembered from Internet articles so probably hurts to read for real experts, I'm sorry. But I hope I got the gist sort of right.)
james_s_tayler 7y ago
If I remember correctly there are rules that the estimated demand and actual generation have to match pretty closely and the overage can only be within a few percent tolerance. You're not allowed to just generate electricity that there isn't demand for.
viraptor 7y ago
Not at that levels of output. With large enough machines it's "we're going to spend X to spin everything down, do maintenance checks, spin back up" vs "we're going to pay you X/2 so you take the output and we can keep going". The X may be spent on extra workers, on extra maintenance, on replacement for posts that wear out faster, etc. It's the cost of unusual operation. And once you're generating there's no great way to just "disconnect" in many cases. If you disconnect the load, the charge still has to go somewhere. Preferably not into nearby equipment. Even the safety switches are non-trivial when dealing with high power - if you break a cable connection, the electric arc will still keep them connected.
- gumby 7y ago
  Some baseload devices can’t really be realistically switched off. Some of these turbines run for decades.
- Udik 7y ago
  This makes me wonder how do you stop generating with a solar farm that is made of PV panels. They're entirely passive, right? The light hits them and they output electricity. How do you stop them? I guess the process is somehow invertible, and once reached a certain static charge each panel stops absorbing energy? In which case you're sort of already dumping the (non)produced energy in the environment- as heat, on each single panel?