When power costs less than zero
Solar and wind generation are disrupting electricity prices in many nations
Bright and breezy days are becoming a deeper nightmare for utilities struggling to earn a return on traditional power plants. With wind and solar farms sprouting up in more areas — and their power getting priority to feed into the grid in many places — the amount of electricity being generated can outstrip demand during certain hours of the day.
The result: power prices are more often slipping to zero or even lower in more jurisdictions. That’s adding to headaches for generators from NRG Energy in California to RWE in Germany and Origin Energy in Australia.
Sub-zero electricity prices are becoming a reality for hundreds of hours in many markets, upending the economics of the business.
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. It doesn’t result in anyone getting a refund, or electricity meters running backward.
Instead, it often prompts owners of traditional coal and gas plants to shut down production for a time, even though many of the facilities aren’t designed to switch on and off quickly. It’s left utilities complaining that they can’t earn the returns they expected for their investment in generation capacity.
Prices are below zero most often in Germany, the first major economy to make a big push into renewables. It’s phasing out nuclear reactors and coal power, leading to more frequent swings in the electricity market. It has also exported its negative costs to surrounding markets. Denmark, Belgium, the Czech Republic, Switzerland and even France have all registered negative hours during this year or last.
In California, there were 110 hours with negative prices in its day-ahead market for power, according to a report from grid manager California Independent System Operator, or CAISO. Prices there are determined in auction one day prior to delivery. They dropped below zero during midday hours when there were high levels of solar generation and solid output from hydroelectric plants.
There were fewer days of sub-zero prices in Australia during 2017 compared with previous years even as more wind-power capacity was built. There, Origin Energy has built a big portfolio of gas-fired “peaker plants”, designed to switch on quickly and only when needed.
It’s plants such as those — smaller and more nimble than traditional generation units — that hold a key to smoothing out the most uncomfortable fluctuations in the market. Peaker plants can help the system cope with big swings in output from renewables.
“Bill Gates became the richest bloke on Earth off the end of the mainframe,” said Neil Eckert, chairman of Aggregated Micro Power Holdings, an energy services company that installs small power plants. “We are seeing the end of the energy mainframe. The world will have to learn new techniques — how to invest in small-scale distributed energy.”
— Bloomberg