
The Night They Drove the Price of Electricity Down - luu
http://www.slate.com/articles/business/the_juice/2015/09/texas_electricity_goes_negative_wind_power_was_so_plentiful_one_night_that.html
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gizmo686
I don't think the author understands the electricity market. Negative spot
prices for energy are not unique to Texas, or wind.

Every energy production mechanism has a limited ability to scale production
(either up or down) on demand. If you overproduce electricity, it needs
somewhere to go, and the electric company is willing to pay consumers for the
service of dumping the excess electricity.

This is not a market inefficiency, it is a technical inefficiency, and is
essentially inherent to the problem of power generation.

If the cost was negative for a prolonged period of time, you would have a real
story.

~~~
strictnein
Worked on a project to address the problem of predicting wind power production
over the short term (as in the next couple of hours). It is a very hard
problem, and when I left it we had declared it successful because we were
something like 10% better than the current method, which is just to assume
that current production will continue.

Wind power is a strange beast. A 300MW wind farm can go from 250MW to 0MW to
100MW over a 1-2 hour period. Trying to properly plan for that or ramping
up/down your coal/gas plants to cover the changes is very difficult and
expensive.

~~~
curtis
I'm inclined to think that wind will only work at bigger scales if we can find
industrial processes that are dominated by energy costs rather than capital
costs and which can scale up and down in energy consumption fast enough to
track the wind output.

I can think of a couple of possibilities. Water desalination is an obvious
candidate. It might be economical to massively overbuild desalination plants
and then only run them at peak capacity when wind is at peak as well. If the
cost of electricity is much greater than the capital cost of the desalination
plants, then it might be a net win when amortized over the lifetime of the
plants.

Generating hydrogen by electrolysis and then immediately converting it to
ammonia by the Haber process might be another. The production of ammonia for
use in fertilizer using methane as the hydrogen source is a major green house
gas contributor. There would be a significant advantage if we could move to
carbon-free production.

~~~
daurnimator
The usual candidate for this is aluminium smelters.

They are extremely energy intensive: usually operators will only turn them on
full when electricity is below e.g. $50 a MW.

The have the added bonus that they can act as a temporary battery: you can
smelt extra aluminium to use up the negative energy rates, but then let it
convert back again.

~~~
phire
I thought aluminum smelters couldn't really shutdown production.

I remember it was big news in New Zealand when Tiwai Point (which uses 15% of
the power nation wide) shut down some of it's production during the 2008-2009
power shortage (caused by a drought in the hydro power lakes.

Graph:
[https://upload.wikimedia.org/wikipedia/commons/e/e2/Electric...](https://upload.wikimedia.org/wikipedia/commons/e/e2/Electricity.NZ.TiwaiPoint.png)

You can also see the other major drought in 1993.

~~~
daurnimator
They can't just turn the whole plant off; but we were taught they can just be
left with a trickle charge to keep them in liquid state.

The large energy cost is in driving the reaction forward.

~~~
phire
Oh right, you can adjust the speed of the reaction throughout the day to
adjust to market fluctuations.

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Animats
This happens occasionally in the PJM control area, even without a subsidy. PJM
has a lot of nuclear and hydro plants in their territory. The nuclear plants
don't like to cut output at 4 AM when they'll have to crank it up at 5:30 AM;
the thermal time constants in the system are too big. So they'll take an
occasional hour of negative prices.

Hydro Quebec sometimes has too much water, in which case they run all their
generators at capacity. They, too, will take an hour of negative prices rather
than closing huge steel intake gates and taking a generator out of service for
an hour, only to have to go through the startup and resynch process an hour
later.

Wind output in the PJM area varies about 4:1 over a typical day. When peak
wind lines up with minimum power demand, prices go negative, the automatic
bidding system communicates back to the wind turbines, and the blades go to
zero pitch, slow, and stop. The wind guys grumble about this, because some of
them financed their operations without allowing for this. But it's not
frequent. Wind turbines are good at shutdown and startup resynch, because they
have to do it every time the wind slows down below useful speed.

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Lazare
Interesting topic; silly article. The author really wanted to use the "only in
Texas" tag, but if you read closely you notice the main driving factor was a
_Federal_ subsidy; nothing at all to do with Texas. (And as other commenters
have noted, other regions and countries also have occasional negative spot
prices.)

I'd say something snarky about "only in slate", but of course, they're hardly
unique.

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venning
So, Texas constructed a market that allows it to take advantage of Federal
dollars being credited to other market participants (energy providers) in the
most efficient way possible.

The author didn't clarify the "complicated" market, but my assumption of the
highest-price-to-everyone mechanism is that ERCOT only selects a limited
subgroup of all bidders each auction period, according to whatever is most
economical for ERCOT. So there is some incentive to keeping your bid low.

What I don't understand is how anyone who isn't benefiting from the tax
credits could bid at or below zero. The author seems to indicate that wind did
not meet 100% of the need during the negative price period and did not
indicate anyone else was receiving tax credits beyond wind producers. So how
was the _highest_ price in the negatives? _Someone_ had to have costs
associated with the electricity they were producing within the 70% that wasn't
wind-powered.

~~~
crdoconnor
>What I don't understand is how anyone who isn't benefiting from the tax
credits could bid at or below zero.

It's also a pretty cheap way of advertising a market opportunity and driving
investors' expectations: your money would be better spent on a new aluminum
smelting plant being our customers rather than a new coal or natural gas plant
being our competitors.

Believe it or not, in the early days, the oil industry also had this problem
of "excess supply". In the UK in the 1900s they dealt with this by lobbying
Winston Churchill (before he was prime minister) to shift the navy from
running largely on coal to running on oil.

~~~
venning
So, intentional loss leaders? That's an interesting theory.

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afarrell
As someone who interned at the New York ISO, the organization that operates
the bulk electricity market in New York State, this article doesn't seem well
researched:

> Third, Texas has a unique market structure....

The article then goes on to describe a market structure that is very similar
to New York ISO and ISO-New England. It is called Location Based Marginal
Pricing.

~~~
Animats
The article is oversimplifying, of course.

PJM has most of their training materials on line.[1] Those give a sense of how
PJM does it. Start with "PJM 101", "Generation Basics", and "How PJM operates
and dispatches".

PJM has a day-ahead market, where most of the capacity is booked a day in
advance, and a real-time market, where differences from the predicted load are
handled. This allows everybody involved to plan ahead a day. There's also
"non-economic operation", where, in the event of big problems, the PJM control
center just tells generators what to do. That's for emergencies.

All generators post not just a single price, but a price/output curve.
Generators also post a "ramp rate"; how fast they can ramp output up or down
on request. PJM's job is to optimize all this, which happens on about a five
minute cycle. There are also lots of physical constraints - transmission lines
and substations can only handle so much power, and policy is to run the system
so that any single failure won't take it down. After a failure, the
transmission system is reconfigured to become single-point failure tolerant
again. There's a control room in Valley Forge, PA, (and a backup control room
somewhere else) where about ten people control the wholesale power grid.

California had, briefly, a system with an spot power auction every half hour,
with dealers who weren't generators or power consumers, but that was abused
and produced blackouts, along with the bankruptcy of PG&E. California now has
a day-ahead market and a spot market for fine tuning, like PJM, which resulted
in much saner operation. So does ERCOT, the Texas grid manager. It's not a raw
auction every half hour.

[1] [http://www.pjm.com/training/course-
catalog.aspx](http://www.pjm.com/training/course-catalog.aspx)

------
Others
As an aside, it annoys me when people straw-man economists. It is of little
consequence, but obviously any economist who studied the situation would
understand at once why producers are incentivized to do this.

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the8472
This is happening occasionally here in germany[1], most recently 2 weeks
ago[2]. Here it's not just oversupply but also the lack of overland lines to
distribute wind power from the north to the south, so we have to push it to
neighboring countries instead.

[1] [http://energytransition.de/2014/05/german-power-prices-
negat...](http://energytransition.de/2014/05/german-power-prices-negative-
over-weekend/) [2] [https://www.epexspot.com/en/market-
data/intradayauction/char...](https://www.epexspot.com/en/market-
data/intradayauction/chart/quarter-auction-chart/2015-09-20/DE/30d)

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rusbus
Could this price make it to ordinary consumers? Could a consumer who was
monitoring the prices consume a large quantity of power during the period to
drive their on electricity bill down?

~~~
positr0n
I live in Texas and I've never seen a plan more complex than a couple of tiers
of prices depending on consumption, or different prices depending on the time
of day (e.g. nights and weekends free).

So no I don't think any residential customers have access to electricity
priced in any quantity besides a month of usage.

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sandworm101
So this isn't a free market. This negative price is the result of an
artificial market created by government subsidies.

If someone is selling something at negative prices, then there is a business
opportunity for someone to buy that product and throw it away. Someone could
setup a giant space heater to do nothing more than absorb electricity. The
windfarms would pay this entity to keep buying power at no cost until the
price approached the subsidy. Perhaps a steel mill or aluminum smelter could
be paid to fire up another furnace for no other reason than to suck up power.
I'm all for free markets and green energy subsidies, but I am totally against
waste.

Hopefully some market actor will appear with the ability to store and resell
energy. That might be homes with batteries and net metering.

~~~
hectormalot
No. The article states that electricity is sold at the highest bid to meet the
demand, and that wind was only supplying up to 40% of the demand. I.e. It is
the coal and nuclear power plants that are also bidding negative.

The market is working, to such an extend that during times of extreme
oversupply power generators have to assess if they will temporarily turn down
production (which has a cost, especially for coal/nuclear, as they are
difficult to switch), or if instead they are willing to pay people to take the
electricity.

Yes, without subsidies, wind would probably minimum bid at a $0/MWh, but that
would still leave fuel based producers running at negative marginal cost.

What's missing in this market is flexible demand. I'm pretty sure if our
appliances would spin up real time at low prices that it would be almost
impossible to hit negative prices again, as demand will rise much more rapidly
in response to lowering electricity prices.

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rusbus
Is there a reason the electrical plants don't short / burn off their excess
electricity rather than paying consumers to use it?

~~~
gizmo686
The same reason people do not take their own trash to the dump, it is cheaper
for electrical plants to outsource the wasting of electricity.

~~~
michaelt
Presumably in a wind turbine you can adjust the pitch of the blades and bring
the rotor to a stop.

I agree that in the case of a nuclear power plant it's hard to stop generating
power if the price goes negative - but if there were no subsidy presumably
wind generators could switch off easily if they wanted to.

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pinaceae
Germany with its switch to renewables is seeing the same issues. They pay the
Netherlands and other neighbors to dump German surplus electricity in peak
wind hours.

Germany has a goal of 80% energey out of renewables by 2050, but it is
entirely unclear if this is even physically possible because of this issue of
spikes.

Norway has it easier as it mountaineous enough to allow hydro everywhere.

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bmmayer1
Completely inaccurate headline, and they buried the lede. The real reason
power producers were willing to 'sell' electricity for negative $8 per MWh, is
because of a $23 federal tax credit they received per MWh. So the negative
sale wasn't negative at all.

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elektromekatron
_" Impossible, most economists would say. In any market—and especially in a
state devoted to the free market, like Texas—makers won’t provide a product or
service at a negative cost. Yet this could only have happened in Texas, which
(not surprisingly) has carved out its own unique approach to electricity."_

Solar revolution drives negative electricity prices in Australia -
[http://www.businessgreen.com/bg/news/2353894/solar-
revolutio...](http://www.businessgreen.com/bg/news/2353894/solar-revolution-
drives-negative-electricity-prices-in-australia)

German power prices negative over weekend -
[http://energytransition.de/2014/05/german-power-prices-
negat...](http://energytransition.de/2014/05/german-power-prices-negative-
over-weekend/)

Negative pricing in the GB electricity market: is the outlook positive? -
[http://www.baringa.com/our-thinking/baringa-
blog/july-2015/n...](http://www.baringa.com/our-thinking/baringa-
blog/july-2015/negative-pricing-in-the-gb-electricity-market-is/)

Why windy days lead to negative electricity prices -
[http://gelookahead.economist.com/why-windy-days-lead-to-
nega...](http://gelookahead.economist.com/why-windy-days-lead-to-negative-
electricity-prices/)

I sometimes wonder if it is a point of pride for journalists to be ignorant of
the subject of their articles.

edit - also, in a regulated market, one of the things that is very commonly
regulated is companies offering goods or services below cost, as it is a very
common tactic for manipulating markets or driving your competitors out of
business.

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Asbostos
tldr: Government subsidies for wind power production exceeded the cost of
"selling" at a negative price so it was profitable for wind farms to do so.

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erikpukinskis
This is why I bought Tesla stock. Tesla Energy is aiming to own this market.

