Plentiful electricity turns wholesale prices negative

Abstract

In 2020, average wholesale electricity prices in the United States fell to $21/MWh, their lowest level since the beginning of the 21st century. Low natural gas prices and the proliferation of low marginal cost resources like wind and solar had already established a trend toward lower wholesale prices, and this trend was exacerbated by declining electricity demand due to the Covid-19 pandemic in 2020. Negative real-time hourly wholesale prices occurred in about 4% of all hours and wholesale market nodes across the United States, but these were not distributed evenly. Regional clusters emerged, for example, in the Permian Basin in western Texas, and in Kansas and western Oklahoma in the Southwest Power Pool (SPP), negative prices accounted for more than 25% of all hours. Negative electricity prices result either from local congestion of the transmission system leading supply to exceed demand locally or due to system-wide oversupply. Looking at the latter condition in SPP, we find that all major generator types contribute to this excess supply, because of limited ramping flexibility or self-scheduled out-of-market unit commitments. Additional monetary production incentives such as renewable energy credits or tax credits also enable negative bids; indeed, negative prices predominantly occur when demand levels are low and wind production levels are high. Frequent negative prices can inform the value of additional renewable energy investments at specific locations, the need for transmission and storage development, and opportunities load growth or adaptation.