Record California solar generation leads to negative wholesale electricity prices

On March 11, between the hours of 11 a.m. and 2 p.m., utility-scale generation in the territory of the California Independent System Operator (CAISO) reached record-high levels of almost 40 percent of net grid power.

The growing amount of solar generation has at times resulted in very low and even negative power prices
on the CAISO markets. Average retail electricity prices in California, however, continue to be among the highest in the United States, according to the U.S. Energy Information Administration (EIA).

Utility-scale solar generation includes solar photovoltaic (PV) systems and a few solar thermal plants. Customer-sited solar generators furthers adds to solar generation. Utilities in CAISO reported 5.4 gigawatts (GW) of net-metered distributed solar capacity as of December 2016.

In late winter and early spring, electricity demand in California is at its annual minimum. Solar generation, while not its highest annual level, is increasing as the days become longer and the sun reaches a higher point in the sky.

As a result, power prices on the CAISO power exchange were much lower in March than other times of the year, as well as March of the previous year. During 8 a.m. and 2 p.m. in March, system average hourly prices frequently dipped to $0 per megawatthour (MWh).

In contrast, prices during the same time of day during March in 2013 to 2015 ranged from $14/MWh to $45/Mwh. Negative prices can occur when generators with high shut-down or restart costs must contend with other generators to avoid operating below equipment minimum ratings or shutting down completely.

Price spikes before and after mid-day periods when utility-scale and distributed solar generate power at their peak levels indicate a need for dispatchable generation sources to help cover ramping periods, when the need for power from the grid to meet load is rapidly changing, according to the EIA.

The mix of generation beyond solar also affects prices. For example, California also saw increased levels of hydropower generation following above-average rain and snowfall this winter. The generation and pricing prices that occurred in March, the EIA said, bring attention some of the challenges grid operators face integrating more solar generation into power markets.