Texas wind farms paid ERCOT to take power, because a tax credit made it profitable

Slate's Daniel Gross reported that in the early hours of a Sunday in September 2015 the real-time price of electricity in Texas fell to zero and stayed at zero or below for several hours. For the interval ending 5:45 a.m. it hit minus $8.52 per megawatt-hour, so generators were paying the grid to take their output.

Three conditions combined. Texas runs its own grid under ERCOT, so surplus power cannot be exported. It had more installed wind capacity than any other state (15,635 MW in 2014), and at 3 a.m. wind supplied about 30 percent of demand. And ERCOT buys power through five-minute auctions in which every accepted bidder in a round is paid the highest accepted price.

The last piece is the federal production tax credit of 2.3 cents per kWh, about $23 per MWh, which wind owners collect on every unit they generate and which can be sold to third parties. A wind farm with no fuel cost that bids at minus $8.52 still nets roughly $14 per MWh, while one that shuts down gets nothing.

Wind has no fuel cost, so its marginal cost of running is close to zero.

The tax credit is paid per kWh produced, so every unit generated earns about $23/MWh regardless of the market price.

Texas is an electricity island, so surplus wind cannot be sold to neighbouring grids.

Overnight demand was roughly 45 percent below the evening peak while the wind kept blowing.

When revenue is attached to production rather than to the sale price, the rational floor for your bid sinks below zero, so read the incentive stack before reading the price.

The article was later corrected: negative prices are not unique to Texas, and the EIA counted 84 such instances in the Northwest US in 2011, driven by hydropower in low-demand periods. It argued the Texas market structure makes them more likely and longer-lasting there.