Negative Electricity Pricing

In April 2023, wholesale electricity prices in CAISO went negative for over 300 hours. Generators were paying the grid to take their power. This is not a malfunction. It is the market working exactly as designed.

Negative electricity prices occur when supply exceeds demand and generators bid below zero rather than shut down, because the cost of staying online (avoiding thermal cycling damage, retaining tax credits, or meeting contractual obligations) is less than the cost of turning off. Wind farms with production tax credits (PTCs) are the most common negative bidders: the PTC pays roughly $28/MWh regardless of market price, so a wind farm can bid as low as -$27/MWh and still profit. Nuclear plants bid negative because restarting after a shutdown takes days and costs millions.

Tracing who pays and who profits. On a spring afternoon, CAISO clears at -$10/MWh for three hours. A 200 MW wind farm produces 600 MWh and receives -$10/MWh from the market (paying $6,000 total). But the PTC delivers $28/MWh ($16,800).

Does the wind farm lose money during negative prices?

No. Net revenue is $16,800 - $6,000 = $10,800. The PTC more than offsets the negative price. The wind farm is rationally paying to produce. Load-serving entities on the buy side actually get paid to consume during these hours.

Negative pricing is a signal that the grid lacks sufficient flexibility (storage, demand response, transmission to export regions) to absorb available generation. It will intensify as renewable penetration grows.

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