Here is something else that is never found in monopoly electricity markets but is a reality in competitive electric markets--negative electricity prices.
Competitive wholesale electricity markets can produce such fierce competition that sellers of electricity are willing to pay buyers of power to take their production. This is the strange but true world of negative electricity prices.
Yesterday, the EIA posted great data on negative electricity prices. See the mind bending facts at:
http://www.eia.gov/todayinenergy/detail.cfm?id=6730.
Electric generation producers with the lowest production costs in competitive generation markets typically bid zero into the market and take whatever the market clearing price is. In the vast majority of hours each year, the market clearing price is a positive number.
But in a small number of hours, in some geographic locations of competitive electricity markets, the zero supply bids actually exceed the amount of electricity demand. At that point, the market price goes negative. Again the EIA has the fascinating details at the link provided.
Now which electricity producers have the lowest production costs and bid zero all the time to assure that they will be dispatched?
Wind, solar, hydro, and nuclear plants, because these plants have no fuel costs or low fuel costs. Renewable generators typically have production costs well below 1 cent per kilowatt-hour, while well-run nuclear plants have running costs around 1 cent.
This fact of power generation life in competitive markets is one reason why renewable energy producers lower wholesale market prices. There is a term for their impact: "price suppression."
Negative pricing is, indeed, severely suppressed.
Fascinating, thanks for your analysis.
ReplyDeleteStanley R Scobie, Ph.D., Binghamton, NY
"Eligible renewable generators can take a 2.2 cents/kWh or $22/MWh production tax credit (PTC) on electricity sold."
ReplyDeleteHere is the explanation. Wind generators sell at a loss and still make a profit!
Fair point up to a point. With or without the production tax credit, wind producers would bid zero into the market. They can do that because they have among the lowest production costs to recover and 99.95% or more of the time the market clearing price is positive and above whatever their extremely low production costs are. Turning on and off a wind turbine for very short periods of time when prices go negative may be impacted to a degree by the production tax credit.
DeleteThey don't have to PAY the utilities to take their electricity. They can halt the turbines, just like they do when the wind is TOO strong (which endangers the turbines). They save some wear on them when they stop.
ReplyDeleteThey just keep supplying the current, at a (small) negative price, because they make a profit out of subsidies.
Nuclear plants can't stop the reactors (they can, though, stop the turbines), but wind turbines can be stopped and are stopped routinely under too strong winds.
In all your posts, eg. the one about solar energy, you never mention the subsidies and mandates, which are the crucial factor, in the expansion of those facilities.
Is that a blind spot, or are enamoured of renewables?
Otherwise, I enjoy you information rich blog.
Please see my reply to your comment to the June 20th solar posting. Thank you for your thoughtful comments.
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