Negative wholesale electricity prices and renewable curtailment sure seem alarming. According to a recent article, Solar power glut boosts California electric bills. Other states reap the benefits, it sounds as if Californians are throwing precious money down the drain. The truth, however, is that money isn’t being wasted. Negative prices and curtailment aren’t the big problem they are made out to be but an important signal that transmission upgrades and storage could be in the money. California’s rising electricity bills also have little to nothing to do with recent renewable electricity contracts.
New renewable electricity contracts are getting cheaper. California’s electricity customers today pay just 6 cents per kWh for new renewables. This is a small and decreasing share of what Californians pay for electricity. For reference, PG&E’s average residential rates are around 40 cents per kWh. Most of the recent increase in electricity bills and rates are due to spending to make the electric grid wildfire resilient, an imperative in the face of climate change, and due to inefficiencies in how electricity rates are structured.
Although the total amount of curtailed electricity may sound like a lot, it’s a small fraction of what is produced. Per the CAISO’s annual report, a little less than 5% of total wind and solar production were curtailed in 2023. Despite being curtailed occasionally, large scale solar is still by far the cheapest way to generate electricity and reduce our dependence on polluting fossil power. As the total amount of renewable electricity produced in California grows, the hours in which electricity prices go below zero and the amount of renewable electricity curtailed may increase as well.
Negative prices and curtailment provide an important signal
Renewables generate electricity at almost zero cost. These generators can bid negative prices, or pay someone, to use their clean electricity when supply exceeds demand. This is because in addition to producing electricity, renewable generators also earn money by selling renewable energy credits, the currency to comply with state clean energy goals, and through federal production tax credits.
The California Independent System Operator (CAISO) curtails renewables in these times of oversupply only if no one is swayed by the prospect of getting paid to consume excess clean electricity. Curtailment due to oversupply is around 30% of total curtailment. The remaining curtailment is due to congestion: electric traffic jams in transmission lines.
Negative prices encourage putting clean electricity, which would otherwise be wasted, to good use. Getting paid to avoid waste while reducing dependence on fossil power is a great deal for California’s utilities and neighboring states. Negative prices are also a signal to battery storage developers that they can make money and help the environment by storing excess clean electricity and then outbidding polluting power plants a few hours later. As battery storage prices keep decreasing, more of it will come online to soak up this excess power.
Negative prices and resultant curtailment have made the state’s power planners and utilities take notice too. A growing share of new renewable contracts are for hybrid generators that pair solar or wind with storage. This hybrid generator exports power when power prices are the highest, which is when the state needs electricity the most and when electricity on the grid is the most polluting.
Policy actions necessary to respond to these signals
There are, however, at least three key actions that policymakers should take to ensure that California’s clean energy transition continues efficiently while keeping electricity bills low: fully integrate the western electric grid, upgrade transmission infrastructure, and improve electricity rate design.
Better regional planning through a west wide electricity market will reduce waste by enabling us to better trade California’s sun grown electrons with those made by northwest wind and hydropower. Timely expansions and upgrades to the transmission grid can alleviate congestion and help move clean electricity to where it needs to go to crowd out expensive and polluting fossil power. Efficient electric rate design that better connects the low cost of clean electricity to the prices consumers pay can encourage more clean electricity consumption and reduce waste. Progressive rate structures can make this clean energy transition more affordable for lower income Californians.
The solar glut isn’t the problem. The solar glut, through negative prices and curtailment, is telling us what we need to do next. The problem is whether we can act on this signal in a timely manner. The solutions to this problem are within reach for California’s decisionmakers.
