Updates
The installation of new transmission lines across Texas has reduced the amount of time wind generators aren’t able to transmit power across the state due to congestion, the U.S. Energy Information Administration wrote this week.
Through a $7 billion project completed last year, 3,500 miles of transmission lines were laid out across Texas, connecting rural regions — where there are wind farms are most prevalent — to the urban centers with high demand for electricity. The project was dubbed Competitive Renewable Energy Zones, or CREZ.
CREZ has reduced incidents of “curtailment,” in which wind generators can’t transmit power through the grid because there’s not enough free space on power lines. That amounts to wasted energy, since the power of wind that’s blowing can no longer be used.And that's just "in-state." Wait until they have to cross state lines.
Original Post
A very strange thing happened here in Texas, early this morning: The so-called spot price of electricity in Texas fell toward zero, hit zero, and then went negative for several hours. As the Lone Star State slumbered, power producers were paying the state’s electricity system to take electricity off their hands. At one point, the negative price was $8.52 per megawatt hour.(Perhaps this is what T. Boone Pickens saw coming, years ago when he failed in his attempt for a huge west Texas wind farm.)
Impossible, most economists would say. In any market — and especially in a state devoted to the free market, like Texas — makers won’t provide a product or service at a negative cost. Yet this could only have happened in Texas, which (not surprisingly) has carved out its own unique approach to electricity.
Consider these three unique factors about Texas.
First, Texas is an electricity island. The state often behaves as if it is its own sovereign nation, and indeed it was an independent republic for nearly 10 years. Alone among the 48 continental states, Texas runs an electricity grid that does not connect with those that serve other states. Texas, the state, needs to consume all the electricity it produces.
Second, Texas has way more wind power than any other state. In 2014, wind accounted for 4.4% of electricity produced in the US. Texas, which has more installed wind capacity (15,635 megawatts) than any other state and is home to nearly 10,000 turbines, got 9% of its electricity from wind in 2014.
(Interesting way to run an auction, to say the least.)Third, Texas has a unique market structure. It’s complicated, but ERCOT has set up the grid in such a way that it acquires a large amount of power through continuous auctions. Every five minutes, power generators in the state electronically bid into ERCOT’s real-time market, offering to provide chunks of energy at particular prices.ERCOT fills the open needs by selecting the bids that are cheapest and that make the most sense from a grid-management perspective — i.e., the power is being fed into the grid at points where the distribution and transmission systems can handle it. Every 15 minutes, the bids settle — at the highest price paid for electricity accepted in the round.
So if 100 MW of electricity are needed, and some producers offer 60 MW at $50 per megawatt-hour, some offer 30 MW at $80 per megawatt-hour, and others offer 40 MW at $100 per megawatt-hour, all the bidders will receive the highest price of $100. (Note: The price ERCOT pays is the wholesale generation charge.)
After midnight on Sunday, the combination of these three factors pushed the real-time price of electricity lower. Demand fell — at 4 a.m., the amount of electricity needed in the state was about 45% lower than the evening peak. The wind was blowing consistently — much later in the day Texas would establish a new instantaneous-wind-generation record.(Winds.)
At 3 a.m., wind was supplying about 30% of the state’s electricity. And because the state is an electricity island, all the power produced by the state’s wind farms could only be sold to ERCOT, not grids elsewhere in the country.
That gave wind-farm owners a great incentive to lower their prices. The data show that the clearing price in the real-time market went from $17.40 per megawatt-hour for the interval ending 12:15 a.m., to zero for the interval ending 1:45 a.m. Then it went into negative territory and stayed at zero or less until about 8:15 a.m. For the interval ending 5:45 a.m., the real-time price of electricity in Texas was minus $8.52 per megawatt-hour.
How could this be? I mean, even the most efficient producer couldn’t afford to provide electricity for free or pay someone to take it.
Well, there’s one more wrinkle. Typically, wind is bid at the lowest prices — because you don’t need fuel, it doesn’t really cost that much money to keep wind turbines moving once they’ve been built. But wind operators have another advantage over generators that use coal or natural gas: A federal production tax credit of 2.3 cents per kilowatt-hour that applies to every kilowatt of power produced.
And that means that even if wind operators give the power away or offer the system money to take it, they still receive a tax credit equal to $23 per megawatt-hour. Those tax credits have a monetary value — either to the wind-farm owner or to a third party that might want to buy them.Much, much more at the link.
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Clever. Why Didn't I Think Of This?
The New York Times is reporting:
Specialists in infectious disease are protesting a gigantic overnight increase in the price of a 62-year-old drug that is the standard of care for treating a life-threatening parasitic infection.
The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.
There are many other examples of the same thing. Incredible.
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