Introduction
There has been a lot of discussion regarding renewable energy curtailments, and some believe it’s a big problem. I dug deeper and, as you’ll read, curtailments and negative pricing are not as big of an issue as some may think but somehow it gets a lot of attention.
California has experienced a significant increase in the number of hours when energy prices turn negative, a trend most prominently observed during the first six months of the year when demand is low. It is exacerbated when hydroelectric generation must release water as the snow melts during spring just as days are getting longer and solar starts producing more.
The electricity market isn’t unique in yielding negative prices that result in energy suppliers paying to produce electricity. Take for instance the Christmas tree market. If I want to buy a Christmas tree before December 25, it will cost over $100 (unless I buy a Charlie Brown Christmas tree). But what if I wait until December 26 to buy a Christmas tree? I can have my pick of any tree on the lot for free. Sometimes the lot owner might even pay me to haul away a truckload of trees. The quality of the tree hasn’t changed between December 24 and December 26. But timing has changed the market conditions and thus the value of the product.