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Change the Structure for Pricing Renewables

Posted by: Alain Meloche

Campaign: How can we make emissions reduction profitable?

Negative pricing situations (where buyers/ users are paid to take up electricity) are becoming more common. That is due to the growth in the share of energy production that is provided by renewables. For example, Germany has witnessed a substantial increase in wind power generation and California has increased its solar power capabilities. Renewable energy is sold using long-term contracts - and in real time on a regional wholesale market, where prices fluctuate based on supply and demand. The price heads below zero on the wholesale market when there's too much supply, that is, when the weather is "good". In those instances of "negative pricing" companies pay other firms to take their power. In some cases, a utility or other company has already paid for the power at a higher price but doesn't need it. In other cases, it is more expensive for the solar power company to stop production than it is to pay a firm in another state to take the electricity because of how their tax benefits are structured. One option to correct the situation is to change the way tax subsidies for renewable energy work, so that firms don't have as much incentive to keep their plants running at full capacity when the power isn't needed. Another option would be to make the retail market more flexible. Then families could opt to charge phones, electric cars and the like when electricity is cheapest. Sources: BBC News June 2017, The Independent January 2018, Bain Consulting private discussions


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