Picture this: Your local electric company finds itself with too much power for its system to handle, so it offers to pay you to consume some of the excess juice.
It sounds like a fantasy, along the lines of the 1950s promise that atomic power plants would make electricity, like water, “too cheap to meter.” (This was back when water was too cheap to meter. Those days are long gone.)
But thanks to the physical laws that govern windmills and power grids, utilities in Germany and Texas have already, on a few occasions, paid consumers to consume. Don’t be surprised if this phenomenon starts to pop up elsewhere.
So-called “negative prices” occur when strong winds coincide with periods of low power demand, causing wind farms to produce more power than their associated utilities can transmit or store. In these situations, utilities have offered credits to customers who soak up some of the excess supply. Germany has paid out as much as €500 (about $665) per megawatt-hour of use. A megawatt-hour is about the amount of energy a small factory or 1,000 homes use in 60 minutes.
“Negative electricity prices happen when supply outstrips demand and we literally don’t know where to put it,” explained Peter Smits, head of central Europe at Swiss power-equipment maker ABB Ltd.
These odd events do not indicate that there is a general oversupply of power, or even that the energy needs of an entire region are being met. Utilities must deliver a steady supply of power to meet their base load, but they also must be prepared to match surges in demand that typically accompany hot weekdays in midsummer, when homes and offices run air conditioning at full blast, or winter cold spells in areas that use electricity for heating. Wind farms are not readily turned on and off to meet changes in demand. The wind just blows when it wants to blow.
To fully benefit from investments in wind power, we are going to need new technology that lets us store power for when it is needed, and new infrastructure, mainly in the form of transmission lines, to get the power to places where people want to use it.
Getting that infrastructure built will not be easy. A lot of people seem to believe that they have a constitutional right to an unbroken horizon, unmarred by wind turbines or power lines.
This created a political oddity last week when the Obama administration, generally seen as friendly to environmental and conservation interests, approved the country’s first offshore windmill farm in Nantucket Sound, over the objections of the state’s newly elected Republican U.S. Sen. Scott Brown. Brown is finishing the term of the late Sen. Edward Kennedy, whose family compound overlooks the wind site and who was one of the project’s strongest critics.
The Massachusetts complex could potentially provide 75 percent of the power consumed on Cape Cod, Martha’s Vineyard and Nantucket. However, local residents are determined to stall the project, which has already been on hold for nine years.
Governments around the world are creating powerful incentives to increase wind development and the use of other non-fossil energy sources. Because renewables like wind and solar power are not reliable enough to supply an entire energy grid (at least until we can build much better batteries for storage), they will have to be part of a mix of energy supplies. Government subsidies tend to distort that mix, leading to some occasional odd results like the power giveaways in Texas and Germany.
A more market-oriented approach would mean slower but more rational development of alternative energy sources. Policy makers, however, do not want to wait, especially in the face of climate concerns and other environmental risks, like the recent oil well blowout in the Gulf of Mexico. So, once parochial interests are overcome — and I am certain they will eventually be overcome — we will see faster wind and solar development, even in cases where the power serves no immediate purpose.
The operating philosophy is that if we build it, they will use it. Once in a while, however, we may have to pay them to use it.
Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book,
The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book
Looking Ahead: Life, Family, Wealth and Business After 55.
Posted by Larry M. Elkin, CPA, CFP®
Picture this: Your local electric company finds itself with too much power for its system to handle, so it offers to pay you to consume some of the excess juice.
It sounds like a fantasy, along the lines of the 1950s promise that atomic power plants would make electricity, like water, “too cheap to meter.” (This was back when water was too cheap to meter. Those days are long gone.)
But thanks to the physical laws that govern windmills and power grids, utilities in Germany and Texas have already, on a few occasions, paid consumers to consume. Don’t be surprised if this phenomenon starts to pop up elsewhere.
So-called “negative prices” occur when strong winds coincide with periods of low power demand, causing wind farms to produce more power than their associated utilities can transmit or store. In these situations, utilities have offered credits to customers who soak up some of the excess supply. Germany has paid out as much as €500 (about $665) per megawatt-hour of use. A megawatt-hour is about the amount of energy a small factory or 1,000 homes use in 60 minutes.
“Negative electricity prices happen when supply outstrips demand and we literally don’t know where to put it,” explained Peter Smits, head of central Europe at Swiss power-equipment maker ABB Ltd.
These odd events do not indicate that there is a general oversupply of power, or even that the energy needs of an entire region are being met. Utilities must deliver a steady supply of power to meet their base load, but they also must be prepared to match surges in demand that typically accompany hot weekdays in midsummer, when homes and offices run air conditioning at full blast, or winter cold spells in areas that use electricity for heating. Wind farms are not readily turned on and off to meet changes in demand. The wind just blows when it wants to blow.
To fully benefit from investments in wind power, we are going to need new technology that lets us store power for when it is needed, and new infrastructure, mainly in the form of transmission lines, to get the power to places where people want to use it.
Getting that infrastructure built will not be easy. A lot of people seem to believe that they have a constitutional right to an unbroken horizon, unmarred by wind turbines or power lines.
This created a political oddity last week when the Obama administration, generally seen as friendly to environmental and conservation interests, approved the country’s first offshore windmill farm in Nantucket Sound, over the objections of the state’s newly elected Republican U.S. Sen. Scott Brown. Brown is finishing the term of the late Sen. Edward Kennedy, whose family compound overlooks the wind site and who was one of the project’s strongest critics.
The Massachusetts complex could potentially provide 75 percent of the power consumed on Cape Cod, Martha’s Vineyard and Nantucket. However, local residents are determined to stall the project, which has already been on hold for nine years.
Governments around the world are creating powerful incentives to increase wind development and the use of other non-fossil energy sources. Because renewables like wind and solar power are not reliable enough to supply an entire energy grid (at least until we can build much better batteries for storage), they will have to be part of a mix of energy supplies. Government subsidies tend to distort that mix, leading to some occasional odd results like the power giveaways in Texas and Germany.
A more market-oriented approach would mean slower but more rational development of alternative energy sources. Policy makers, however, do not want to wait, especially in the face of climate concerns and other environmental risks, like the recent oil well blowout in the Gulf of Mexico. So, once parochial interests are overcome — and I am certain they will eventually be overcome — we will see faster wind and solar development, even in cases where the power serves no immediate purpose.
The operating philosophy is that if we build it, they will use it. Once in a while, however, we may have to pay them to use it.
Related posts:
The views expressed in this post are solely those of the author. We welcome additional perspectives in our comments section as long as they are on topic, civil in tone and signed with the writer's full name. All comments will be reviewed by our moderator prior to publication.