Wind Killing Electricity Prices

Here's a side-effect of West Texas wind power: it's driving down electricity prices due to, in some cases, surplus electricity.

Implications

A surfeit of wind energy is pushing down the price of all electricity. The real time price of electricity in West Texas, where almost all generation is wind, was negative for 23% of April 2009. The negative prices spilled over to the rest of Texas for about 1% of the month. This may be the future of the electric industry, with negative prices for a substantial amount of time each month.

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The effect of these government programs is a surfeit of renewable energy projects, especially wind projects. Since electricity is fungible, the surfeit of renewable energy projects is creating a surplus of electricity capacity, and sometimes a surplus of the actual production of electricity. Since electricity cannot be easily stored, the surplus can cause operating problems and is driving down the market price for electricity in the competitive markets such as ERCOT, the Electricity Reliability Council Of Texas, which operates the electricity facilities in most of Texas.

ERCOT has identified four different market areas based on the likelihood of transmission constraints between these market areas. The smallest market area is the West market area, which is dominated by wind generation. The capacity of wind generators in the West market area is so great that they occasionally swamp the transmission lines connecting the West market area with the rest of ERCOT. During such times, ERCOT calls upon the generators in the West market area to reduce generation, essentially to dump wind.

Until recently the ERCOT procedure was to actually tell generators in the West market area to dump wind. The wind generators apparently were unhappy with the command and control attitude of ERCOT and sought an economic approach. The current ERCOT approach allows generators in the West market area to bid for access to the transmission lines connecting the West market area to the rest of ERCOT. At least that was effectively the situation for 23% of the time in April 2009. During 664 of the quarter hour periods in April 2009, the price for generation in the West market area was less than zero, with generators paying for the right to dump electricity into the grid. During 28 of those quarter hour periods the negative prices spilled over to other parts
of ERCOT.

- Brewskie