Uneven Supply and Demand for Electricity Causes Negative Prices

Germany is known around the world for its bold investments in renewable energy ($200 billion since the mid-1990s), but the creation of such vast supply causes wrinkles in the economics of power, namely, negative prices on occasions. 

Like all other market economies, Germany’s power producers sell electricity according to the laws of supply and demand, so that when demand is low and the wind is blowing like stink, customers are actually paid to take the oversupply of power.  This was the case yesterday, Christmas Day, when unseasonably warm weather push demand for energy far below what would otherwise been expected.

If you’re wondering what could possibly be the problem with this, ask yourself if you’d like to be a grain farm and have to pay people to take your corn and wheat.

Of course, this is a temporary condition, but, although it’s somewhat rare, it occurs many times throughout the year in Germany, as well as in other European countries including Belgium, Britain, France, the Netherlands and Switzerland.

Solar and wind energy will always be variable, and demand will always be at somewhat unpredictable, so negative pricing will cease to be an issue only when either energy storage or high-voltage, long-distance transmission become cost-effective, which still is several years from happening.

Our civilization actually is addressing the challenges associated with clean, low-carbon energy, but no one said it would be easy.