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.

[beelsebob]

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.

Re:Its all in the taxes and incentives.

[bertoelcon]

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.

That won't do much good though, Tesla still can't sell in Texas without going through a bunch of hoops for a dealership.

Re:Its all in the taxes and incentives.

[Sqr(twg)]

Nope. A negative price of electricity is not a sign that electricity is going to be cheap on average. On the contrary, it is a sign of poor infrastructure and heavy dependence on fossil fuel. (Coal and oil fired plants are expensive to take off-line, which is why the price of energy fluctuates wildly when the wind changes.) With better infrastructure and more hydro power, the price would not have fluctuated into negative, but would have been lower on average.

Re:Its all in the taxes and incentives.

[ShanghaiBill]

You missed the part where this happened at 4AM.

Electric cars can be pre-programmed to charge at any time. My wife has a Tesla, and hers is set to start charging at 2am. Our house has a smart-meter that records time-of-use, and our rates are lower at night.

Re:Its all in the taxes and incentives.

[Forgefather]

Speaking as someone who lived in Texas for 5 years. I saw more Teslas there than anywhere else I have traveled. Not being able to sell them in the state has done nothing to stop people from getting them. Every single grocery store has electric chargers out in front, as well as every apartment complex. Just on one street I could have had access to over 15 chargers. Electric cars were very popular in Dallas.

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.

Re:Its all in the taxes and incentives.

[fahrbot-bot]

You can't just "do" something with surplus power on the grid...

Actually, you can and in Virginia we do. The Bath County Pumped Storage Station uses surplus power (from a nuclear plant) to pump water up into a reservoir to later be used to generate hydro power during high demand.

Also see: The Inside Story Of The World’s Biggest ‘Battery’ And The Future Of Renewable Energy

Re:A non-free market acts erratically. So?

[chill]

If you think free markets can't, and don't act erratically, you're delusional. The only time markets don't act erratically is in monopoly situations, where they are tightly controlled -- either by a government monopoly, or a corporate monopoly.

Not news

[pocketbookvote]

Negative prices have persisted in Texas and elsewhere for the past decade; this is not news. It is a function of the tax credit, but also a lack of transmission. When transmission is not available from wind resource areas, the prices will be negative there (and higher on the other end), reflecting the fact that wind has to back down because it can't go anywhere. There are also instances where there is simply more power than there is demand over an entire area, but this not as common; that scenario is actually a bigger problem in California due to the buildout of solar (for which there is no production tax credit, notably). Negative pricing was much worse in Texas a few years ago before they built a backbone transmission system to get wind from West Texas to load in the east. There is no doubt that the spot price of energy on average is lowered by wind; utilities nationwide are signing contracts at $20/MWh or less, well below today's average spot price, fixed for 20+ years. Interesting aside - even before there was much wind, prices in the Pacific Northwest would typically go negative for a few hours in the spring when coal needed to be paid to back down to accommodate spring runoff through the hydro system.

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.