Power Prices, Utilities, Sourcing Renewables  -  August 6, 2018

Green energy glut = power prices at zero

As wind and solar systems continue to expand, the amount of electricity being generated is outstripping demand during certain hours of the day, resulting in power prices falling to zero or even below in more jurisdictions.

A report by Bloomberg noted that 'bright and breezy days are becoming a deeper nightmare for utilities struggling to earn a return on traditional power plants." The report continues, "Once confined to a curiosity for a few hours over windy Christmas holidays, sub-zero cost of electricity is becoming a reality for hundreds of hours in many markets, upending the economics of the business in the process."

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.

The chart above from Bloomberg shows the incidence of so-called negative power prices so far this year. Hardest hit is Germany, where the government has been working for more than a decade to shift the economy toward cleaner forms of 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, said William Nelson, an analyst at Bloomberg New Energy Finance. “On the supply side, the intermittent sources like wind and solar are most likely to deviate from their day-ahead plans,” Nelson said. California has been an exception, posting 110 hours with negative prices in its day-ahead market, according to a report from grid manager California Independent System Operator (CAISO).

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