How Wind and Politics Pushed the Price of Texas Electricity Below Zero

Slate dissects the strange circumstances that led the price of electricity in Texas to briefly dip not just to zero, but into negative territory, reaching at one point negative $8.52 per megawatt hour. Why? A combination of being an "electricity island" with only weak ties to the surrounding state's grids; strong wind in a state that's sprouted thousands of windmills; and infrastructure design that means the only real buyer for most electricity producers' output is ERCOT, the Electric Reliability Council of Texas. (One of the comments attached to the story notes that Texas is not completely isolated from the national grid, but it's still markedly isolated.) A slice: Demand fell—at 4 a.m., the amount of electricity needed in the state was about 45 percent lower than the evening peak. The wind was blowing consistently—much later in the day Texas would establish a new instantaneous wind generation record. At 3 a.m., wind was supplying about 30 percent of the state’s electricity, as this daily wind integration report shows. And because the state is an electricity island, all the power produced by the state’s wind farms could only be sold to ERCOT, not grids elsewhere in the country.

Comments

Its all in the taxes and incentives.

[Mr D from 63]

Wind farm owners get lots of taxpayer help paying for the construction of the wind farm, then forced production credits means they get paid if power is needed or not. Apply this to any generation technology and the result would be pretty much the same.

The model is even worse in place where the grid is forced to purchase power a even higher rates.

In this model, who pays for the reliable backup?

Re:Its all in the taxes and incentives.

[Mr D from 63]

Which is great news! Texas is ahead of the world now in being prepared for the huge increase in electricity usage that good electric cars will cause.

Why? Because for a brief moment when electrical usage was at it very lowest (3 am, September day, little heating or cooling) and wind average is blowing at record highs they can supply 30 of demand? How is that world leading? They did accomplish showing how skewed the market had become, that is a form of leadership.

Re:Its all in the taxes and incentives.

[Solandri]

If you RTFA, the negative price is a consequence of a demand constraint (only ERCOT can buy the power) and a federal subsidy for wind generation. Normally when supply exceeds demand, the market price drops to below the cost to make some of that supply. It becomes not worth it to keep operating generators which are more expensive to run, and supply decreases to match demand.

In this case though, there's a $23 per MWh federal subsidy for wind power. I dunno why the summary left that out since that's the most important piece to this puzzle. So even though wind producers are having to pay others $8.52 per MWh to take the electricity off their hands, they're still being paid $23 per MWh to produce it, for a net income of $14.48 per MWH. So they're still running their wind turbines at full even though the price is negative, because to them the price is still positive.

The subsidy is the main reason the price went negative. The other reasons you cite contributed. The lack of power exchanges with other states meant the excess electricity couldn't be sent to other places where demand still outstripped supply. And the incentive to keep nuclear and coal operating (oil and gas can ramp up and down almost as easily as hydro) meant wind could push the price negative even though it was providing just 30% of the power. But the subsidy was the main culprit. If there were no subsidy, the wind turbine operators would've simply feathered their turbines and ceased production before the price went negative.

Negative pricing is huge incentive for batteries

[gurps_npc]

That is how the free market is supposed to work. Anyone that can come up with an effective electrical storage company can make a ton of money with spot negative prices. Even if negative prices vanish, they can still make money with a large enough spread.

If storage has even an 50% loss rate, then daily price variation should be limited to 50% because otherwise storage batteries would make a profit.

The trick is to create a battery efficient and cheap enough to reliably make money on daily price variations.

Re:Of course

[Anonymous Coward]

Currently this is true, but the costs on batteries keep going down and as the battery producers ramp up production prices will drop even more. Things are going to get interesting more quickly than many realize:

In our modeling for both The Economics of Load Defection from April 2015 and its predecessor, "The Economics of Grid Defection" from February 2014, our average battery price in 2015 was $547/kWh. Our models did not assume a price close to $350/kWh until 2022 (the $429/kWh price arrived in our models in 2018).

This means Tesla’s batteries are seven years ahead of the prices we modeled. (The $250/kWh utility price point didn’t appear in our models until 2028, although we didn’t specifically model a utility-sized solution.) A seven-year accelerated price reduction means tens of millions more customers will be able to cost-effectively install solar-plus-battery systems than we originally modeled in our analyses.