Less Than Zero: Why Texas Power Generators Sell at a Loss
Last month, power plants and wind farms in Texas did something you wouldn’t expect them to do. They offered electricity at a negative price.
That’s right. They basically offered to pay for someone to use the electricity they generate. Sounds crazy, but it's something that analysts expect will happen more and more often.
Here's how it happens:
Imagine the transmission lines of Texas all buzzing with electricity. It’s on there because someone generated it, and someone else wants to buy it. Kenan Ögelman, vice president of commercial operations at the Electric Reliability Council of Texas, says negative pricing happens when that balance is thrown out of whack.
When there’s too much power and not enough buyers, electricity generators start dropping their prices. When there's a lot more electricity than demand, those prices can even go negative.
Generators have different reasons for doing it. Some of them, like coal or natural gas plants, do it because they don’t want to stop running. It’s too costly to stop and then start back up again, so it makes economical sense to run overnight at a loss, rather than start it all over the next day.
Ögelman says it helps to think of those power plants like cars.
"If it's running at a stop sign, it takes less time [to start back up again] than if you were, at every stop sign, to turn off the engine while you waited and then started the engine back up," he says.
Wind farms have a different reason to sell "negative." Government incentives mean that they can make money through subsidies, even if they’re selling at a loss.
“The only way that they can acquire the production tax credit is to put electrons onto the grid,” Ögelman says.
That wind power is the reason we’ll likely see more negative prices. The wind blows at night, precisely when the fewest people want to use electricity. Lots of supply with little demand means prices go negative.
“Most of the negative prices you see are in the kind of midnight to 5 a.m. time period,” he says.
Threat to Fossil Fuel Generators?
Some fossil fuel power generators see negative pricing as a threat. They want the way the grid is run, and the market rules that govern the grid, to change. But so far, it’s probably not an existential threat, says Assistant Director of UT’s Energy Institute Carey King.
“Power generators need to earn enough revenue over a long period of time. So, whether they make a lot of revenue or lose some revenue on a particular day is not the full concern. It’s how much they earn over a long period of time,” King says.
For consumers, negative prices sound great. Theoretically, you’d get paid to run your A/C – right? Well, no. Utilities usually buy electricity in contracts that span months and years.
So even if electricity is priced "negative" on the spot market, "most of the electricity is being contracted at some positive price,” says King.
That means you’re still paying for electricity, though maybe not quite as much; or, in the case of some utilities, maybe you're not paying at all during nights or weekends, says John Hall, the Texas Director of Clean Energy for the Environmental Defense Fund.
"Some utilities have set up programs where they say 'you sign on with us, you're going to get free electricity during this time period," says Hall.