(Bloomberg) -- From mountain-top wind turbines in Norway to rooftop solar panels in Australia, renewable energy is flooding into power networks like never before. Because the output from these new sources fluctuates with the changing winds and the movement of the sun, they often deliver more electricity than grids can absorb, leading to the curious phenomenon of “negative” power prices.
This year is likely to see a record number of hours when the price of electricity dips below zero. While all that cheap power can be good news for households and industries, it’s a serious concern for investors in renewable energy assets, as the volatility in prices is a threat to steady profits.
What causes negative power prices?
Electricity is traded on wholesale markets in a similar way to oil and natural gas. The difference is that those commodities can be stored in tanks and big ships until they’re required, while the volume of batteries being plugged into the grid to store electricity has yet to catch up with the boom in renewables.
As electricity is produced and consumed instantly, if the power being generated exceeds demand and can’t be nestled away for later use, prices can dip below zero. When this happens, producers effectively have to pay consumers to take the surplus energy off their hands.
Why are negative power prices becoming more common?
Efforts to reduce carbon emissions are boosting the share of renewables in grids across the world, making power supply ever more volatile.
Electricity production from wind turbines can surge, or slump, within the space of a few hours. And the expansion of solar makes oversupply a growing problem during daylight hours, particularly around midday and in the summer months when generation peaks.
Europe’s biggest solar market, Germany, is expected to top 100 gigawatts of installed solar capacity in 2025, more than doubling from five years ago, according to BloombergNEF. Solar generation in the country is forecast to reach nearly 20% of its total annual electricity production.
Weekends and public holidays are more prone to negative power prices thanks to the overlap of lower electricity demand and, depending on the weather, the continuing influx of renewable energy.
Can’t you just shut off the excess renewables or other power sources to compensate?
It’s not that simple. Turning nuclear, coal and gas-fired power stations on and off can be slow and expensive. A new generation of gas plants has been developed that can ramp up and down within minutes. However, the process can take hours for older facilities running on coal and nuclear, which typically “continue operating regardless of market price, amplifying the impact of other drivers for negative prices,” said Jannik Carl, a research associate at Aurora Energy Research.
What’s more, there’s no penalty for continuing to produce electricity when there’s little demand, and state subsidies designed to promote clean power mean that renewable generators often have an incentive to keep pouring electricity into the network even after prices turn negative.
Germany is looking to address this distortion by narrowing the pool of solar producers eligible for its “feed-in tariff” when market prices turn negative. This is a government subsidy that guarantees a minimum price for certain renewables developers for every kilowatt-hour of electricity they produce — even if that power isn’t needed.
Some grid operators pay renewable assets to switch off to avoid overloading the system but it’s an expensive option. Known as “curtailment”, this practice cost more than £1 billion ($1.3 billion) in the UK in 2024 and is expected to surpass £1.8 billion in 2025, according to the National Energy System Operator.
Which countries are most affected by negative power prices?
Sub-zero electricity prices first occurred in Germany in 2008 as the nation ramped up its wind and solar capacity. They’ve become increasingly common across the globe in recent years — from Europe to Australia and the US.
Finland outpaced all other European markets in 2024 with 725 negatively priced hours, up from just five in 2021 and beating Germany’s 455 hours, according to data from Aurora. Limited capacity of high-voltage cables to export electricity — known as “interconnectors” — meant Finland couldn’t sell more of its excess production to other countries.
Over in Australia, the rapid shift away from coal and massive uptake of household solar has made it a test case for the energy transition. The nation’s main grid has struggled to accommodate supply surges during the brightest hours of the day. Spot power prices fell below zero for a record 23% of the time in the final quarter of 2024. Some utilities, including Ovo Energy Ltd., have been offering households free lunchtime power.
In the US, negative power prices are becoming more frequent and severe amid increased wind and solar generation and growing grid bottlenecks. Sub-zero prices are being seen everywhere from Texas and California to the PJM grid in the east of the country that spans 13 states plus the District of Columbia.
In Texas, they’re even occurring during the higher demand hours of the day, which stretch from 6 a.m. to 10 p.m. on weekdays. In late October 2024, the average day-ahead price in West Texas was negative for two consecutive days for these “on-peak” hours and hit a record-low -$7.37 per megawatt-hour, according to grid data compiled by MCG Energy Solutions LLC.
What’s wrong with sub-zero electricity prices?
The risk is that renewables become a victim of their own success. Subsidies that encouraged the uptake of wind and solar installations are now being phased out in many markets, and projects need to show they can thrive without government support. But negative prices cut the average wholesale price offered to generators, depressing the profits from green energy. If renewables projects look less economically attractive to build, it could potentially slow the shift to a net-zero emissions power system.
In Spain, solar energy is now so widespread that it’s leading to long periods when prices hover around zero. In an attempt to shield their projects from negative and volatile prices, renewables developers are striking long-term agreements to sell their power to corporate consumers. These deals usually stretch more than a decade. However, this risks adding to the problem by creating even less incentive for renewable producers to dial down generation during times of surplus.
Does anyone benefit from negative power prices?
The price volatility creates opportunities for new companies to enter an industry long dominated by traditional utilities. Owners of battery assets can take advantage of the fluctuating power prices by buying electricity to charge up when prices are low or negative and discharging to the grid when prices are higher.
There’s also a whole host of new technology-driven companies that specialize in high-volume, short-term trading. Many of these use algorithms to process thousands of trades a day to profit from marginal price differences across markets.
Do negative power prices mean lower electricity bills?
Not for the vast majority of consumers as they’re on fixed-price contracts that don’t reflect the daily or hourly ups and downs of wholesale power markets.
But more than a million users, mainly in northern Europe, do have supply contracts tied to wholesale prices. So, when a particular hour is priced below zero, they get credited for using electricity at that time. The idea is to boost energy efficiency and encourage more flexible consumption habits, whereby people charge their electric cars, put on the dryer or take a shower when prices are low (and when more of the energy is coming from renewables).
However, even if consumers get paid to use power during some hours, their periodic bills are unlikely to swing to a credit as these also include network charges, taxes and other additions.
Are negative power prices the new normal?
As more renewables are plugged into the grid, electricity prices are likely to dip below zero more often in the coming years — unless battery storage grows to absorb more of the surplus energy production.
“Co-location” of batteries alongside wind and solar assets is becoming more popular as renewables developers look to store their excess output and capitalize on the arbitrage opportunities from volatile electricity prices.
Greater grid capacity would also help stave off negative power prices, as the oversupply of electricity in one area could be shifted to countries and regions where there’s higher demand. Siting batteries closer to these demand centers could relieve the grid congestion issues too and ease the pressure to undertake expensive grid upgrades.
--With assistance from Rob Verdonck, Carolynn Look and Naureen S. Malik.
©2025 Bloomberg L.P.
