Negative Pricing in U.S. Electric Power Production and Distribution

Abstract

This chapter focuses on the common occurrence of wholesale electricity prices that fall below the cost of production. This “negative pricing” in effect represents payment to high-volume consumers for taking excess power off the grid, thus relieving overload. Occurrences of negative pricing have been observed since the wholesale electricity markets have been operating, and occur during periods of low demand, while generators are being kept in reserve for rapid engagement when demand increases (it is expensive and time-consuming to shut down generators and then restart them, so they are often kept in “spooling mode”). In such situations power production may temporarily exceed demand, potentially overloading the system. When the federal government began subsidizing the construction of wind generation projects, with regulations in place requiring transmission grids to accept all of the electricity produced by the wind generators, negative pricing became more frequent.

Citation

Jones, K. (2014), "Negative Pricing in U.S. Electric Power Production and Distribution", Research in Finance (Research in Finance, Vol. 29), Emerald Group Publishing Limited, Leeds, pp. 153-165. https://doi.org/10.1108/S0196-3821(2013)0000029009