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US electricity prices turn negative

Plunging domestic energy demand is raising concerns that Covid-19 will slow the growth of renewables

Pandemonium descended on the US oil market this month, but crude is not the only energy source in extreme oversupply. When the world runs out of storage, oil prices can—and recently did—go negative. But what happens when there is a surplus of electricity?

Spring in America is the seasonal window when the giant solar installations of California and the vast wind farms of Texas start to crank up. Typically, the rising flows of renewable supply are offset by warmer temperatures and soaring air conditioning demand from workplaces. But Americans this spring are, like people everywhere, working from home. There is a question therefore over where to put the extra electricity.

California, like other parts of the US, has a traffic controller for power supply. The California independent system operator (Caiso) is already having to curtail power for which there is no demand. For owners of solar and wind farms too much curtailment—being told to switch off or having to swallow negative prices—over the course of a year can understandably reduce a power plant’s investment ­return.

According to Caiso, first quarter curtailments more than doubled to 474GWh from the same quarter last year, when they came to 218GWh. Annualised, that would amount to roughly 3pc of wind and solar’s supply. This may seem small, but summer is approaching and curtailments will rise further.

Moreover, wind and solar are no longer novelties. Last year, the two power sources combined to provide nearly 24pc of California’s power; Texas, led by wind, has come close to matching that figure. The great plains states such as Iowa and Oklahoma also have high penetrations of wind and, along with Texas, they too are now seeing higher curtailments. Analysts might counter that the power grid has had to manage negative prices at times for years. But curtailments in 2020 will surely be higher than ever before.

The great plains states such as Iowa and Oklahoma also have high penetrations of wind and, along with Texas, they too are now seeing higher curtailments

If Californians were driving, some of that extra power might get put into electric vehicles (EVs). Oil has enjoyed a monopoly over transport for over a century, but that is changing. EVs reached nearly 8pc of the California car market last year. And while this year and next will certainly be dire for vehicle sales, the EV fleet is still on pace to reach a million units probably sometime in 2022. Electricity is therefore making inroads into transport.

When the lights went out on the global economy last month, most of the world’s vehicles came to a halt. Californians are not driving their petrol-powered cars or their EVs. Most of the pictures taken of Los Angeles at the moment show clear blue skies. According to the Environmental Protection Agency, last month saw some of the best air quality in Los Angeles in the past 25 years. What if city dwellers across the world get used to cleaner air and want to keep it that way?

The sudden restrictions on the economy have affected not just gasoline demand in the US, which is down by 40pc year-on-year, but corn too. The crop is a major component in the production of ethanol, which is blended into the US petrol mix. Corn prices have crashed to multiyear lows.

One industry that will benefit from electricity oversupply is battery storage. The nascent and still emerging market will likely conduct more frequent arbitrage—taking cheap or free surplus power during the midday hours and selling it back for a profit at night. Indeed, this is why utility Arizona Public Service (APS) decided early last year to ditch plans for new natural gas plants and build large batteries instead. APS concluded that neighbouring California would have much surplus power to sell in the years ahead. That timescale has now been rapidly brought forward

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