The Night They Drove the Price of Electricity Down
slate.com
slate.com
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.
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.
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.
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.
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...
You can also see the other major drought in 1993.
Planned shutdowns are another matter entirely.
In terms of instantaneous interruptible load, wood pulping mills are king. There are some enormous wood chippers in NZ's north island that can be remotely turned on and off by one of the generating companies.
some marketing speak here.
http://energyforindustry.co.nz/experience/interruptible-load...
The large energy cost is in driving the reaction forward.
It seems to me that home battery packs make things like wind power much more attractive because of their ability to smooth out the difference between supply and demand.
I'm not sure why that is dysfunctional. It seems to me like it is compensating for a technical issue?
When looked at from a holistic view, the grid should pay much more for distributed solar production. If it was valued correctly then consumer battery storage would rarely, if ever, make economic sense.
Hawaii have been refusing to allow more solar to be added to the grid, instead of investing on the network upgrades to make it work. Australia are charging high electricity prices for overbuilding the network and not properly valueing the contribution of solar. Various other places are trying to introduce punitive charges for domestic solar. It's good that consumer storage exists as it puts market pressure on these dysfunctional organisations, but decent regulation would have sorted this out properly with far greater efficiency.
I don't know how it could ever not be dysfunctional.
Another interesting development recently was the creation of electric diesel. The economics don't seem to make a lot of sense yet but I don't think they've hit the efficiency limits of what is possible yet. The interesting thing is that it's carbon neutral (assuming the energy going into the process is carbon neutral, e.g. when excess renewable energy drives energy prices negative at moments of the day) probably works on a massive scale, and immediately allows existing fleets of combustion engines to become more sustainable. I'm not sure how fast these factories can turn on and off production but I'm assuming it's pretty good.
The efficiency is pretty low, electricity to diesel I've heard of efficiencies of 13%. And then a diesel engine itself is only about 30% efficient, compared to electric engines of > 90%. It makes more sense to invest in storage solutions and an electric car fleet, but if we do get significant excess renewable energy that is difficult to store, combined with ediesel becoming more efficient, then it becomes an interesting idea. Particularly for all the transport that is hard to electrify (airplanes, trucks), carbon neutral synthetic fuel made with renewable electricity could make sense one day.
I'm mostly optimistic about electrifying cars though. The next-gen top electric cars are getting close to ~100 kwh storage (today it's more like 80-90). Cars per capita in OECD countries is probably around 0.6 - 0.7 or so. That's a lot of storage if fully electrified, about 60-70 kwh per capita. Daily residential electricity usage is probably about 10 kwh in OECD countries. Of course that's when you electrify the entire car fleet which is a ridiculously big task (today's new car sales tend to be sub 1% electric), but if you can do 5% within a few decades, you can create multiple hours of storage which would be a huge impact on the ability to balance intermittent energy sources, without having to invest in storage for the sake of storage.
https://en.m.wikipedia.org/wiki/Dynamic_demand_(electric_pow...
Many coal and nuclear plants are actually quite good at load following (at least in France and Germany it's common to run nukes in this mode). The units are quite big so they don't have to do that many % per hour in order to keep up with a wind park.
Unfortunately, it doesn't. The big grids such as CAISO (all of California, with wind farms over a range of 500 miles) and PJM (Ohio to the Atlantic Ocean) still routinely see 4:1 variations over the course of a day.
Here's today's CAISO data: Max wind generation: 1350 MW, at 1 AM. Min wind generation: 186MW, at 5 PM.[1] This sucks. At least with solar, you get max output and max air conditioning load at the same time. Getting max wind generation at 1 AM is not too helpful. However, the California Water Project, which is a big power buyer for pumping water uphill, profitably buys late-night cheap power for pumping, then lets water back down through turbines during high-load periods. So some of the big reservoirs double as pumped storage.
Batteries would help. It will take a lot of them. At least 300,000 Tesla Powerwall battery packs would be required to load balance that variation in wind. That's about a billion dollars, which is not unreasonable. When we see wind farms starting to buy batteries in bulk, it will be clear this is working.
But the amount of battery required for reliability is higher than the amount required for improved profitability. Something has to be able to provide power when the wind is calm for a few days, which happens.
[1] http://content.caiso.com/green/renewrpt/20150918_DailyRenewa...
Solar, for example, could be said to have infinite variability since its not available at night, but its actually fairly predicatble if it is spread around geographically.
The price would of course go down for quantity, and putting the individual cells into larger units. Let's wave our hands and say 900M -> 500M.
But per https://en.wikipedia.org/wiki/Tesla_Powerwall the $3,000 7kWh daily cycle units have a lifetime of "only" 5,000 cycles. So half "a billion dollars" every 13.5 years, ~100K/day.
It doesn't really make sense to do this with nuclear. Once you've paid the capital cost to construct a nuclear plant, the fuel cost is completely inconsequential and you might as well run it at 100% constantly. Even if you can vary the load you're better off to find something to use the extra capacity for than, essentially, throwing it away.
Of course, that's before politics and market inefficiency. It may be more profitable to reduce supply unnecessarily if it will raise the price per KWh because it's more profitable to generate 900MWh at $.18/KWh than 1000MWh at .04/KWh.
Heck, I can think of a lot of uses of power that become practical if the rates are really low. The hot water heater could be heated up a bit extra hot. Ice could be made to supplement the air conditioner during high electric cost times, etc.
All that's needed is variable pricing to the consumer.
There's usually some cost differences for night/day time (or winter/summer) depending on your contract
Now, to have variable pricing for home customers I think the complexity outweighs the advantages (as in, limited capacity to enjoy momentarily cheaper prices)
Then you can set different prices for different things: Don't turn off my AC unless the price exceeds $.50/KWh but stop charging my electric car if it exceeds $.12/KWh.
The power company's problem is that everybody has their AC turned on at 3pm and either the node supplying those houses is overloaded or they must buy energy at crazy spot prices to clear the market.
If they can flip a switch and knock out nearby ACs for 10 minutes then they have time to figure out how to solve the problem before it becomes a blackout.
Now they could "theoretically" introduce a pricing mechanism such that a number of people would shut off their AC due to an increase in price. But that is a lot more complicated (most residences do not do real-time billing for energy, harder to forecast how many users will shut off if price is raised, have to maintain real-time channel for price data) and in practice something will go wrong and you'll blackout instead.
My power in Northern Illinois from nuclear plants run by Exelon is 1 cent per kwh between midnight and 5am due to such low demand. That's pretty close to free.
Doing real-time billing is not a hard technical problem, it's just a one-time cost to replace all the meters.
At that point all you actually need is a standard IP-based protocol to announce real-time rates. The power company doesn't even need to communicate bidirectionally with individual devices whatsoever -- all they need to do is broadcast the current rate and let the devices make choices. Because the choices various devices make will invariably be "when price goes up too much, use less power." So if people are using too much power, you raise the rate a little bit at a time until they no longer are (or the higher rate causes more expensive generation methods to come online).
The only way you get blackouts is if the rate goes so high that every smart device with a cutout is already off and you still don't have enough power, but that's exactly the same failure point as letting the power company turn off your AC. Only worse because if you need some non-standard power company interface with bureaucratic rules instead of a simple standardized rate announcement protocol then there will be fewer smart devices built and purchased that will reduce consumption in response to high rates.
Much easier said than done.
> At that point all you actually need is a standard IP-based protocol to announce real-time rates. The power company doesn't even need to communicate bidirectionally with individual devices whatsoever -- all they need to do is broadcast the current rate and let the devices make choices
Several problems there (before I get into 'kids these days' mode):
- Meter connected 24/7 just to get prices is not feasible (also remember you need per meter pricing for the issues listed by the parent)
- For it to make decisions to "use less power" you need a controller for every device (heating/AC/etc) you want to be controllable - or something more complex if you want fine-grained control
Too complex for home usage, basically, where you want to turn your devices on and not worry about spot pricing
But I'd sign up for variable pricing. I'd need a way to query the internet for the current price. Then, appliances can be set to run when rates are the cheapest. (Electric dryer, hot water heater, refrigerator, dishwasher, car battery charger, etc.)
If they're paying people to dump electricity on them, I can't believe they've got variable pricing for the bulk of their customers.
https://emotorwerks.com/juicebox
It can be set to change when the price is cheapest (on a short timescale, not just an off-peak price) and also to try to minimise the carbon used. It does depend on the local utility offering rebates, but it's often in their narrow financial interests to do so, so the incentives work out.
See also Ice Bear (and competitors) for air-con that stores cheap electricity as ice.
This generally falls under "smart grid" and "demand management" and well designed electric grid markets like in Texas enable these companies to respond to the market price signals.
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.
I'd say something snarky about "only in slate", but of course, they're hardly unique.
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.
It's not the highest price bid. It's the highest price bid among the cheapest set of bids which could fill demand. Say we need 100 units of electricity in the next hour, and the bids are 50 units @ $2/unit, 30 units at $5, 30 units at $10, and 30 units at $20. Then, to get 100 units, you only need to buy from the first three suppliers, who are offering 110 units between them. The highest price among those is $10/unit. The 4th supplier's price is higher, but he's not among the winning bidders.
According to the article, not all of the electricity could be provided by wind. So roughly 70% of the capacity offered by the "winning bidders" came from non-wind sources which, presumably, require positive prices to sustain themselves. How was the highest bid among those selected negative?
If you're running a massive coal plant (and nuclear is ten times worse), you can't just turn it off for 5 minutes if the last 5 minute auction didn't go your way. Even if you think the next 10-20 auctions won't be economical for you to win and you start the shut down process, you'll still need to get rid of that power you're generating in the meantime.
What (probably) happened is that the a combination of high wind production and low demand meant the system temporarily had a surplus of power, and some (non-wind) producers actually were selling power at a loss just to get rid of it because they couldn't wind their systems down fast enough. Which is a much more interesting story than "federal government subsidies wind". Shame Slate didn't talk about it.
Assuming the author is accurately describing the market, by definition, the bids of wind producers will always account for a minority of the capacity. Which means the other 70+ percent of the supply is coming from other producers. If your explanation holds, then coal producers and the like were bidding themselves at a loss, which seems like that is a state that could happen even in the absence of wind producers.
I can see how the wind producers are affecting this, but they're not a requirement. If there was a transition to considerably lower-usage electrical devices within Texas, the relative gap between demand and capacity of the existing producers would result in the same effect on the market: everyone scrambling to deal with ramp downs even at a loss. It's just that the wind farms produced that gap on the supply side instead.
if there was a general move to lower power use, the market would adjust to the lower level. it is the unpredictable variability that causes the negative prices.
I wonder if some producers were counting on the "winner's curse". The auction pays out at the highest price that was needed, so if you want to sell at any price you might put in a negative price just to ensure you're picked.
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.
> 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.
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://energytransition.de/2014/05/german-power-prices-negat... [2] https://www.epexspot.com/en/market-data/intradayauction/char...
So no I don't think any residential customers have access to electricity priced in any quantity besides a month of usage.
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.
If this happens all the time, it will drive the average price of power down, and power hungry industries will move there, but steel mills and aluminum smelters can't move around the country at a few minutes notice.
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.
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.
For wind power, because wasting the power before it hits the grid would result in them not getting their federal green energy subsidy.
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.
Solar revolution drives negative electricity prices in Australia - http://www.businessgreen.com/bg/news/2353894/solar-revolutio...
German power prices negative over weekend - http://energytransition.de/2014/05/german-power-prices-negat...
Negative pricing in the GB electricity market: is the outlook positive? - http://www.baringa.com/our-thinking/baringa-blog/july-2015/n...
Why windy days lead to negative electricity prices - http://gelookahead.economist.com/why-windy-days-lead-to-nega...
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.