Where Power Goes Negative
Tracking the repercussions of misaligned generation incentives and the localized opportunities for energy industry stakeholders
On This Energy Shots
Federal incentives like production tax credits (PTCs) and investment tax credits (ITCs) are primary drivers of the ~200 GW of wind and solar generation capacity installed in the U.S. since 2010. While beneficial for renewable developers and flexible power users, incentives that distort wholesale price formation are a notable complication for stakeholders of a reliable, affordable, and scalable grid.
This Energy Shots answers:
Which regions are exposed to the highest frequency of PTC-related negative power price events?
Which regions will likely see deeper and more prolonged negative price events?
What are some of the emerging risks and opportunities for stakeholders across the power value chain?
Read Time: 4 min.
Symptoms of A Structural Imbalance
Several recent Energy Shots reports highlighted the emerging power requirements of technologies like artificial intelligence and electric vehicles.
If expectations prevail, these two industries will require more than 170 GW of U.S. power generation capacity in less than a decade.
Those forecasts are certainly a newsworthy figure, as shown by the recent spate of headlines discussing AI’s power needs. However, several structural imbalances pose long-term risks to meeting that demand growth.
One symptom of these structural imbalances appears in the growing frequency and geographic distribution of negative power price events.
The Negative Price Conundrum
Federal incentives like production tax credits (PTCs) and investment tax credits (ITCs) are primary drivers of the ~200 GW of wind and solar generation capacity installed since 2010.
While bullish for renewable projects and flexible power users, incentives that distort wholesale price formation are a notable complication for stakeholders of a reliable, affordable, and scalable grid.
Negative prices are typically fast and effective supply controls—paying your customer to buy your product isn’t a sustainable business model. However, that supply control deteriorates in cases like the PTCs in the U.S. power market.
The PTC provides a tax credit of up to $26/MWh, enabling wind generators to bid negative prices and profit for the first ten years of output. As a result, markets experience deeper and more prolonged negative price events, ultimately eroding revenue opportunities for reliable and flexible generation resources.
We can observe the effects of PTCs on regional price dynamics over the past decade, particularly in wind-rich regions like the Southwest Power Pool (SPP), Midcontinent Independent System Operator (MISO), and the Electric Reliability Council of Texas (ERCOT).
In 2023, negative prices occurred in more than 20% of the year across large swaths of SPP, MISO, and ERCOT.
As wind capacity additions far outpace new dispatchable supply, the frequency and geographic scope of negative prices are poised to grow.
Wind capacity additions between 2023 and 2025 are expected to outpace natural gas combined-cycle additions by a 2.5-to-1 margin, concentrated in the SPP, MISO, and ERCOT.
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