Prognosis negative: How California is dealing with below-zero power market prices
A rainy winter and growing solar have CAISO prices going negative and renewable energy going to waste — what should policymakers do?
Market forces and contract obligations are regularly dipping power prices below zero in California.
The dynamic is not new — negative pricing has occurred sporadically across the country for decades. But now, expanded renewable energy production, especially in the West, is prompting a new round of more consistent negative pricing.
“Negative pricing is driven by a hard-to-fathom dynamic in any efficient market,” said Jeff Bladen, the Market Services Executive Director for the Midcontinent Independent System Operator (MISO). “At times, it is more efficient for energy producers to give energy away free or even pay consumers to take their power plants’ generation than to curtail production because the shutdown and startup of the plant may cost them more.”
To counteract overproduction and negative pricing, grid operators can order the curtailment of utility generation, thermal or renewable.
Until recently, the frequency of negative pricing events was declining around the nation as transmission was built out and grid operators learned better techniques to integrate variable renewable generation.
But this year, western power systems, particularly the California ISO, have seen a boom in negative pricing incidents as flush hydro reserves from a rainy winter come together with an ever-expanding base of intermittent solar generation. Even with persistent curtailment of renewable energy, the average CAISO real-time electricity price dipped below zero twice a day in March.
The negative pricing threatens market revenues for traditional generators, sparking concern from some that flexible gas plants needed to balance out wind and solar production may have to shut down, as the La Paloma plant did last year. Combined with the desire to maximize renewable energy output lost output of renewable energy to curtailment, the concerns have policymakers discussing ambitious market fixes to keep power prices in the black.
Worst in the West
Curtailment of renewable energy by the California Independent System Operator (CAISO) rose steadily in the second half of 2016 as solar penetration reached new highs, according to the grid operator’s March market report.
Curtailment reached record levels during California’s rainy winter as its hydropower supply rose 180% over 2016, said Guillermo Bautista Alderete, CAISO’s Market Analysis Director.
“Of the 288 daily 5-minute intervals, an average of 31% were curtailed in the first three months of 2017,” Alderete said. In 2015, 15% were curtailed; in 2016, that rose to 21%.
This year’s average curtailment is likely to drop after a drier summer and fall, but remain above previous years, he added.
CAISO directs resources to curtail to avoid excess power and negative pricing. But since not all resources can curtail, and because it is costly for many gas plants to shut down completely, prices can dip into negative territory during times of high renewable generation.
The growing role of solar in negative pricing can be seen in the distribution of curtailment events, Alderete said. When wind generation was the cause, the bulk of the negative pricing events fell in windy early morning hours. The bulk of events are now during midday hours when solar production is highest.
During California’s winter, both supply and demand drove high curtailment. In addition to increased solar generation and an unusually abundant hydropower supply, there was seasonally reduced load.
“The typical winter load is around 30,000 MW but in the summer it is in the mid-40,000 MW range,” Alderete said.
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