August 7, 2018 Read More →

Zero-cost electricity disrupts traditional power-generation models in U.S., Europe and Australia

Bloomberg News:

Bright and breezy days are becoming a deeper nightmare for utilities struggling to earn a return on traditional power plants.

With wind and solar farms sprouting up in more areas — and their power getting priority to feed into the grid in many places — the amount of electricity being generated is outstripping demand during certain hours of the day.

The result: power prices are slipping to zero or even below more often in more jurisdictions. That’s adding to headaches for generators from NRG Energy Inc. in California to RWE AG in Germany and Origin Energy Ltd. in Australia. Once confined to a curiosity for a few hours over windy Christmas holidays, sub-zero cost of electricity is becoming a reality for hundreds of hours in many markets, upending the economics of the business in the process.

“There is no time pattern for having negative prices in Belgium,” said Marleen Vanhecke, an official at the nation’s grid manager, Elia System Operator SA. “This phenomena is mainly determined by high wind generation in Germany and enough import capacity towards Belgium.”

Periods with negative prices occur when there is more supply than demand, typically during a mid-day sun burst or early morning wind gust when demand is already low. A negative price is essentially a market signal telling utilities to shut down certain power plants. It doesn’t result in anyone getting a refund on bills — or in electric meters running backward.

Instead, it often prompts owners of traditional coal and gas plants to shut down production for a period even though many of the facilities aren’t designed to switch on and off quickly. It’s left the utilities complaining that they can’t earn the returns they expected for their investment in generation capacity.

“Energy market price signals are critical to telling generators where to build new resources,” said Abe Silverman, deputy general council at NRG Energy, which is concerned about the anomaly in California. “As negative prices become more prevalent, we’ll have to evolve our energy market price formation strategies to ensure that we will continue to drive efficient investment.”

Prices are below zero most often in Germany, which was the first major economy to make a big push into renewables. It’s phasing out nuclear reactors and coal power, leading to more frequent swings in the electricity market. It also exported its negative costs to surrounding markets. Denmark, Belgium, the Czech Republic, Switzerland and even France have all registered negative hours during this year or last.

More: Power Worth Less Than Zero Spreads as Green Energy Floods the Grid

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