Electricity markets are complex, opaque, and volatile. Every now and again they can deliver strange results that leave most of us scratching our head. One example of this is so called "negative pricing". I get asked about this strange phenomenon quite often so wanted to address it here. Negative electricity pricing results in companies actually paying, instead of being paid, to accept electricity. Why would any power company pay someone to take their power? And on the demand side, how can you and I who normally pay BC Hydro for our electricity, instead get paid ourselves?
Electricity is a very unique product in that it must be consumed the moment it is created; there is no practical way of storing it on a large scale. Therefore, any unanticipated shock to the system, like a power outage, or perhaps a surge of wind in markets where there are many wind farms, has immediate consequences with electricity prices going very high or very low. However, when prices go negative the questions remains: why would any power plant not simply turn off instead of staying on and having to pay others to take its power?
For some inflexible sources of power generation such as coal power plants or nuclear power plants, they are simply to slow to react. Usually when electricity prices go negative, they only do so for a few minutes or at most a few hours. Coal plants cannot adjust their output that quickly. Nuclear plants are even worse as they cannot adjust their output at all. They are either off or on and once they are turned off, they take about a month to restart and get up to full speed. Luckily in B.C. we are blessed with an abundance of flexible hydro power which can turn on and off in seconds.
Negative electricity prices are often associated with areas that have a lot of wind farms. Wind power, like hydro power, is very flexible. The reason they are willing to accept negative power prices is due to how they are compensated. In some areas such as Ontario, wind farms receive a fixed "Feed-in-Tariff" regardless of what the underlying price of power is. In other markets, wind farms are actually paid the negative electricity price but in addition receive an additional tax credit, (Texas) or green certificate, (Alberta) which can offset the negative electricity price.
But what about the demand side? Is there a way you or I could be paid to accept electricity? It sure sounds enticing. Unfortunately the answer is not yet, but its apparently coming at some point. Smart meters will allow individual households to take advantage of these short term fluctuations in electricity prices. And smart appliances will allow our appliances to automatically make the electricity management decisions for us on a passive basis. The final piece of the puzzle would be for the BC Utility Commission to allow BC Hydro to adjust its retail prices to reflect the underlying volatility. I doubt that will happen anytime soon.
