Negative prices are becoming a more frequent occurrence in the NEM as variable renewable energy (VRE) plays a larger role in the supply mix. Negative priced offers from generators form a large part of the MW capacity offered into the market. The negative prices we see in dispatch intervals reflects the situation were there is sufficient negatively priced capacity to meet demand. In this week’s Issue, we look into the trends of negative prices and the challenges that come with operating in this type of environment.
Firstly, to be clear, there is nothing wrong with negative prices. The ability to offer negative prices was originally designed to provide financial incentives for participants to self-manage their commitment decisions. Individual generators would need to determine their willingness to continue operating or shut down in the face of negative market prices. That decision rests on a few factors including the expected duration of negatively priced periods as well as the respective participant’s market exposure and risk profile.
