Negative Wholesale Electricity Prices?

windmillsIn many wholesale electricity markets there is the strange situation where the wholesale price of electricity is actually negative. That is, on the spot market, they will pay you to use electricity. Sounds pretty strange doesn’t it? Well, there are some reasons for this, and they generally make sense.

I guess the first thing you need to realize here is that this is the wholesale market, and not the retail one. Unless your electricity bill is really really big, you don’t have access to the wholesale market. What retailers do is buy electricity as needed on the wholesale market, and then distribute it to the consumers. The distribution costs, both on the high voltage side and the local distribution end more than double the price of electricity. So, while the wholesale price may go negative, there is no way that consumers could be paid to use electricity, even if they were able to access the wholesale rate, and just paid for transmission costs on top of that.

In terms of generation, there are two ways that electricity is provided to the network:

  • Scheduled
  • Unscheduled

Scheduled generation is all the electricity generated by large mechanical devices from fuel. They can be turned on and off as required, but will have constraints such as the minimum and maximum they can generate, and the speed at which they can adjust the amount of energy they are generating.

Unscheduled generation is for things such as solar and wind that generate whenever the driver is there. They often are unable to be disconnected from the grid, and even if they could, you would not want to since they are generating electricity without requiring any fuel.

So, the network or grid is forced to accept the power from the unscheduled generation. And the scheduled generation has a minimum that they can generate whilst remaining on the grid, and they really do not want to drop off the grid. So, what happens when there is more generation in terms of unscheduled generation and this minimum scheduled generation? Well, there is an excess in energy that needs to go somewhere.

So, simply speaking, what happens is that everyone wants to stay on the grid, so the generators have the option to say to the users of electricity that they can be paid to use it. It keeps the generator happy, since they stay on the grid, and it keeps the user happy, since they get the electricity cheap. They might not get it for free, since they still need to pay for the distribution and transmission costs, but it is a lot cheaper than otherwise it would be.

So, why are we at Redshift Wireless talking about this? Well, what if there was a way for you as an electricity retailer to get this electricity at give away prices and be able to actually sell it…