Negative Electricity Price – Only in Texas

Published: Mon 21 Dec 2015
A blog entry by Brian J

Contributed by:

Brian J
CIO
CET

Brian J's Blog

Negative Electricity Price – Only in Texas

In a world where the price of almost every service is rising, higher electricity bills can sometimes mean having to choose between turning the heater on or buying food for the family. True, only the low income families are confronted with this dilemma. But almost everyone knows that when electricity rates hike up, there's a lot of belt tightening that needs to be done. But what if electricity rates drop? What do you do when electricity is sold at negative prices?

It may be unbelievable, but it's happening in Texas. It's all because of wind energy. With the installation of additional wind farms,  wind turbines in the state are generating excess electricity. So much so that in March early this year, the wholesale price of wind-generated electricity was down to negative $8. The power producers were literally paying to get rid of the excess electricity.

How could wholesale electricity prices drop so low? There are three factors that make it possible for this phenomenon to happen in Texas. The first thing to consider is that Texas is generally considered as an electricity island – its electricity grid, run by the Electric Reliability Council of Texas (ERCOT), does not connect with grids that serve other states. The implication is that whatever electricity is produced in the state has to be consumed at the moment it is produced, because it cannot be sold or transmitted to other grids.

The second factor to consider is that Texas is the leading producer of wind energy in the nation, since 2006. Six of the top ten largest wind farms in the US are found in Texas. Plus, there are more wind farms currently being constructed. Thus, when the wind is blowing, there is just too much electricity supply. And if demand is low, such as during the wee hours of the morning, then you get excess electricity that urgently need to be consumed.

The third factor has to do with the way the electricity market is set up in Texas. “ERCOT has set up the grid in such a way that it acquires a large amount of power through continuous auctions. Every five minutes, power generators in the state electronically bid into ERCOT’s real-time market, offering to provide chunks of energy at particular prices. ERCOT fills the open needs by selecting the bids that are cheapest and that make the most sense from a grid-management perspective.”[1] Does this mean that wind power producers are losing money? Not necessarily, given that wind is free.

If you want free electricity, then Texas is the place to be. And it's not just a fluke. In September, wholesale electricity rates dropped to negative prices again. Only in Texas.



[1] http://www.slate.com/articles/business/the_juice/2015/09/texas_electricity_goes_negative_wind_power_was_so_plentiful_one_night_that.html