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.

[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.