Why do powerplants sell electricity for a negative price?

[ConradG]

TL;DR

Occasionally powerplants sell electricity for a negative price due to excess supply.
Could they not allow the excess electricity to dissipate instead, to avoid this cost?

Hi all, sorry in advance if this is a dumb question, I am not an electrical engineer but find the topic fascinating! My question is:

Occasionally powerplants sell electricity for a negative price due to excess supply, such as in Germany:

https://www.cleanenergywire.org/factsheets/why-power-prices-turn-negative

I understand that they cannot produce less electricity, because ramping up and down is difficult. And I understand that it is essential for inputs and outputs from the grid to be balanced, to maintain frequency.

But what I don't understand is, why do they do not allow the excess electricity to dissipate, instead of paying to send it into the grid?

Is it particularly difficult to get rid of excess electricity? I understand that the energy would be converted into heat, but could they not heat up some nearby large object by a couple of degrees?

I appreciate anyone's insights and thank you in advance :)

 

[anorlunda]

That's a fair question.

There is such a thing as a waterbox resistor. It is like a swimming pool of water that can be boiled to dissipate energy. But they are very rare because dissipating energy doesn't make sense.

But the real answer is that power plants are paid a fixed fee just to enter a bid into the energy markets. If that bid is accepted (even at negative price), they are obligated to supply the energy to the grid.

So the money they might lose on a negative price is offset by the fixed fee. As a consumer, you should be happy for that fixed fee. It helps to assure that they won't turn off the power and let you sit in the dark if they don't like the current prices.

There are less important secondary issues. Severing the grid tie, to send power to a waterbox then reconnecting later is risky. If it goes wrong, the whole plant might trip and it could take many hours to get back.

 

[ConradG]

Thanks very much for your reply! And it is very interesting to learn that the power plants receive a fixed fee in addition to the price they agree to sell for.

I guess if the price went sufficiently negative, to the extent that it outweighed the fixed fee, then the power plant would have a financial incentive to avoid sending electricity to the grid. But then the issues you mention with disconnecting and reconnecting would become relevant.

Out of interest, what is the fundamental reason why there is a risk to disconnecting and reconnecting? Is it because the produced electricty needs to be at precisely the same frequency as the grid?

 

[Borek]

This is all an interesting interplay between changing demand, technicalities of the power plant operation and the way market operates. In a typical, thermal power plant start-up procedures are way too long for the demand cycle, so the plant has to work continuously, no matter if the demand exists or not. Sure, to some extent they can change production level, but they have to produce some minimum power all the time. From the economical POV loses involved with a negative price are lower than building special installations to burn out excess energy (they are still built for emergencies, but not for continuous/systematic use).

 

[Vanadium 50]

One way to look at it:
It would cost them $2 to dissipate this energy themselves, but a customer is willing to do this for $1. What's the better deal?

Another way to look at it:
The electric company is giving me a discount to move some of my consumption from one time to another. Sure, if you isolate that discount it looks like negative prices, but you can't actually turn a profit this way - it's just a discount.

 

[anorlunda]

Anyone in the wholesale power business has to think of the long term. There are 8766 hours in a year. Suppose you make a profit for 8760 hours and a loss for 6, is that worth a lot of trouble to worry about?

So it is rational to ignore minor losses. But there are powerful human psychology motivations to avoid losses. I remember renting video tapes in Sweden during the 1980s. The video store would charge a 10 SEK fine if I didn't rewind the tape before returning it. FINE! That aroused my fight instincts. I wanted to bring a gun to the video store so that I could fight it out. Fortunately, rational thinking took over and I decided, "Pay the fine. It's not worth trouble." Negative power prices for a few hours per year are an emotional issue like that fine.

 

[anorlunda]

Another issue is the time granularity of price setting. When I started working with energy markets we set prices once per hour. Later that was changed to once every 15 minutes.

Suppose that in Germany you see negative prices sometimes for 1 hour. If the average price was calculated once every 4 hours, it would probably never be negative. If it was calculated once every minute, there would be more occurrences of negative prices per year. Who cares? It's not worth worrying about.

 

[Vanadium 50]

Suppose you make a profit for 8760 hours and a loss for 6, is that worth a lot of trouble to worry about?

Likewise, is it worth building a power sink for six hours per year? Especially as we already have one (the grid) that you can "rent"?

 

[Baluncore]

There is one point that I think has not been clearly made. When the negative price is being charged, the minimum energy is being generated.

So not only is it a small proportion of the time, but it is also a small proportion of available capacity. The operating cost of negative pricing is the product of the two. 1% of the capacity, for 1% of the time, is only 0.01% of the energy production economy.

 

[Keith_McClary]

we set prices once per hour. Later that was changed to once every 15 minutes.

Are there many users who can take advantage of bargain prices at that timescale? I've heard that freezer warehouses can.

 

[anorlunda]

Are there many users who can take advantage of bargain prices at that timescale? I've heard that freezer warehouses can.

No users at all. I was referring to the wholesale energy market, where sellers are power plants and buyers are local utilities. For example Fortis Alberta.

End users buy power retail (at higher prices). The rate schedule (including time-of-day rates) is typically set by regulatory law and it stays fixed for a year or more before changes.