Power from California sun turns wholesale electricity prices negative
California’s solar installations are feeding so much power into the grid that they have driven wholesale electricity prices at times as low as zero — or even below, meaning the companies that generate power pay utilities to take it. It is an environmental success story that is beginning to pose unexpected technical and financial challenges.
The U.S. Energy Information Administration (EIA) reported last week that utility-scale solar energy supplied nearly 40 percent of California’s power needs for the first time at midday on March 11.
This milestone reflects a significant change for the California Independent System Operator (CAISO): The rate of installation for utility-scale solar power generators grew by almost 50 percent last year. This proliferation of solar energy generators drove prices very low during daylight hours in late winter and early spring.
“We’re talking about prices on wholesale power exchange that are going negative for a few hours a day and are positive for most of the other hours,” Chris Namovicz, the senior renewable energy analyst for EIA, told Yahoo News.
Namovicz explained that the negative pricing relates to the wholesale market power exchange between solar power generators and a handful of utilities in California, such as Southern California Edison, San Diego Gas & Electric, and the Pacific Gas and Electric Company.
These utility companies purchase solar power on behalf of their retail customers from power generators for hourly prices that are adjusted throughout the day.
“When the prices go negative, it simply means that the money flows the other way,” Namovicz told Yahoo News on Wednesday. Rather than going to the trouble and expense of stopping and restarting a generator, some power-generating companies “are willing to say, ‘It’s cheaper for me to pay you to take my power than it is to shut down and not generate.’”
The average wholesale price for solar power is still net positive, however, so it would have only a negligible impact on the electricity bills of California residents, who still pay some of the country’s highest electricity prices on average.
Other power markets, such as wind energy in the Midwest, occasionally see negative prices at times when demand goes particularly low, Namovicz explained.
“Certainly in California it’s more frequent this year than it was last, and as more solar gets added, it seems to be increasing,” he said.
According to EIA, the total solar capacity in California (for both small scale and utility scale) grew from less then 1 gigawatt in 2007 to nearly 14 gigawatts by the end of last year.
Namovicz said this is a sign that solar generators might need to think of different accommodations for how to absorb wind and solar energy.
“I think it’s certainly giving system operators pause to reassess how their operations work,” he said. “Things are changing, and they might not be able to work the way they have in the past.”
Sean Gallagher, the vice president of state affairs for Solar Energy Industries Association (SEIA), a nonprofit trade association, said the solar industry in California is a success story and that short periods of negative pricing are not indicative of a serious problem.
“At times these past months, if you include behind the meter, rooftop solar generation, solar was providing 40 to 50 percent of California’s energy needs for a few hours, primarily in the middle of the day,” Gallagher said.
He said that over time, the United States will need to develop new ways to manage the grid to accommodate this new, cleaner energy system that we are starting to have and will increasingly have in the future.
“Broadly, there are lots of tools we have on the electric grid and in the ratemaking to help manage the generation of resources like wind or solar,” he said. “And we’ll have to increasingly make use of those tools as we move toward a cleaner energy future.”
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