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At the height of mid-1950s optimism about nuclear energy, Lewis Strauss, chair of the US Atomic Energy Commission, publicly mulled the idea that electricity could become “too cheap to meter”.
In Europe’s power market, thanks to surging wind and solar investment, things have gone even further: generators are now frequently paying for the privilege of providing electricity to the grid. What’s going on?
The rise of negative power pricing
One day in April 2020, something bizarre happened in the US oil market. Amid the economic chaos of the Covid-19 pandemic’s early weeks, crude producers struggled to offload the oil gushing from their wells, and had resorted to paying others to take it off their hands. For the first time in history, the oil price turned negative.
By the next day, it was back in positive territory. The West Texas Intermediate oil benchmark’s plunge into the red was an extreme anomaly that might never be repeated.
But in some electricity markets, negative pricing is now an established — and expanding — feature of the landscape. This phenomenon is a reflection of robust investment in renewable power generation, but also raises some troubling questions about its outlook.
Distributed electricity “is one of the most useful things we’ve ever invented, and we now have a market that frequently decides it’s worth nothing”, notes Peter Wall, head of grids research at analysis firm BloombergNEF.
While it has been happening to some extent in parts of the US and China, the trend is most visible in Europe, where negative prices were once a rare sight but have been increasingly common since 2023. The most striking example is Spain, which had 404 hours of negative electricity prices in the first five months of this year, according to energy consultancy Enervis. Negative prices have been spreading across much of the continent:
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Crucially, these numbers refer to hourly wholesale market prices — not the retail prices paid by electricity consumers, which reflect the overall cost of the power system. And while there are windy, sunny periods when renewable plants have more generating potential than the system can take, there are others when they have much less. (So don’t expect your monthly energy bill to turn negative any time soon.)
On one level, the negative pricing trend reflects the success of Europe’s clean energy subsidies, which have driven strong investment in renewables over the past few years. Unusually sunny conditions so far this year have also helped boost solar generation. Meanwhile, demand for European grid power has been falling — due to a combination of economic malaise, energy efficiency efforts (particularly after Russia’s invasion of Ukraine), and the rise of rooftop solar power (which is also backed by subsidies):
Still, why would any business pay its customers to take its product? This is partly about mechanics. Many thermal power stations (and some wind plants) are not designed to be stopped and started frequently, and operators may prefer to suck up a few hours of negative pricing over the cost of an unscheduled shutdown.
Rigid subsidy regimes also play a role. In several European countries, renewable generators benefit from a fixed subsidy (known as a feed-in tariff) for every unit of power they sell. So if there’s a negative market price of, say, 10 cents per unit, but the generator receives a subsidy of 30 cents per unit, then it’s profitable to keep on selling, negative pricing be damned.
Then there’s the related issue of “curtailment”, in which renewable producers are being forced to halt production when it’s necessary to balance supply and demand, typically with compensation for the lost revenue. In northern Scotland, wind farms were paid £119mn not to produce 37 per cent of their potential output in the first half of this year.
These seemingly perverse dynamics could create real problems for the energy transition. Growing sums spent on curtailment payments risk pushing up energy costs and sapping public support for green investment. The rise of negative prices, meanwhile, weighs on the potential returns for renewable projects. Developers and investors have been voicing increasingly serious concerns about the financial impact of negative pricing over the past year, says Rishab Shrestha, principal analyst for European power at consultancy Wood Mackenzie.
All this could yet prove a bump in the road towards a future energy system with cheap, abundant low-carbon power. The current oversupply of power capacity will look like a blessing if demand grows strongly in the coming years. That looks likely, given the expected growth of electric vehicles and energy-hungry data centres to power artificial intelligence. Negative prices should “recede” from the market by 2035, reckons Rebecca McManus, European renewables lead at Aurora Energy Research.
But demand growth alone won’t be enough to stabilise the market, she notes. Policymakers will have a crucial role to play. Creating the conditions for a long overdue surge of investment into grid infrastructure should be the first priority.
Long-distance transmission links — for example, between Scotland’s offshore wind farms and the power demand centres further south — would dramatically reduce the wastage of low-cost green energy. This was a key part of how China reduced the severe curtailment levels seen there a decade ago (though the problem has reared its head again in the past two years, as the Chinese grid fails to keep up with generation growth).
Investment in grid-level battery storage is taking off as the need for it becomes increasingly stark, but could be boosted by smartly targeted subsidies — as advocated, for example, by the UK House of Lords science and technology committee. These could be funded partly through smart reform of the subsidies for power generators, to eliminate the perverse incentives that are helping to drive the negative pricing phenomenon.
And while most policy so far has been “very supply-focused,” as Shrestha notes, there is far more that could be done to shift demand patterns — for example, through dynamic pricing schemes that encourage consumers to use more electricity when supply is most abundant, and less when it’s constrained.
European policymakers have done a decent job spurring investment in renewable electricity generation. Now they need to turn more attention to the other pieces of the low-carbon power puzzle.
Smart reads
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Troubled talks The ongoing UN negotiations on plastic pollution are being hampered by climate obstruction tactics, warns Pilita Clark.
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