Briefing Note | February 2021
Negative prices in the wholesale electricity market are a signal that there is too much supply relative to demand at that moment in time.
The NEM spot market has a floor price of -$1,000/MWh.
Negative prices have become more frequent in a number of states in the last two years, particularly during the middle of the day and more common from late winter to spring July-November. According to Watt Clarity, South Australia was in negative prices 10 per cent of the time during 2020.
One of the main causes of increased frequency of negative prices is increased renewable generation, in particular rooftop solar PV, which generates irrespective of changes in the wholesale price. There is now 13GW of rooftop solar PV installed in Australia. Many large coal generators are continuing to operate during negative price events as they are honouring long term contracts with customers at positive prices.
Negative prices are not a good or bad thing in themselves, however they are a symbol of increasing volatility in a market with more intermittent generation than ever before.
Negative prices should, in theory, attract investment in large scale storage assets that can capitalise on them, such as pumped hydro and large batteries, providing those assets are cost-effective to deploy.
How individual generation assets (or users) behave when spot prices are negative will depend on their contracting arrangements. These reduce exposure to spot prices and so some assets/users may not be sensitive to negative prices.