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“Why Is California Continuing To Curtail Solar & Wind Energy Production?”

image credit: Solar farm
Ron Miller's picture
Principal Reliant Energy Solutions LLC

Ron Miller is an energy industry expert creating value by analyzing assets, markets, and power usage to identify, monetize, and implement profitable energy and emission reduction projects. He is...

  • Member since 2020
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  • Jun 10, 2022

In 2020, California curtailed 1,587,496 megawatt-hours (MWh) of solar and wind energy costing federal taxpayers $39.05 million in Investment Tax Credits provided but not rewarded with the contracted energy production. Why should the average American care? With solar and wind generation promoted as the cheapest energy we can produce, why are we subsiding it with federal investment and production tax credits, respectively, when the California grid cannot handle all of its production?

Unknown to the public, is that in 2019 California curtailed 891,065 MWh of solar/wind which cost federal taxpayers (ITC) $21.92 million, and curtailed 1,504,803 MWh in 2021 costing taxpayers $37.02 million.

Current solar and wind investment tax credit (ITC) benefit:


The investment tax credit (ITC), also known as the federal solar tax credit, allows a solar developer to deduct 26 percent of the cost of installing a solar energy system from federal taxes. The ITC applies to both residential and commercial systems, and there is no cap on its value.

The ITC was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007. Congress has extended its expiration date multiple times, including most recently in December 2020 to extend the ITC at 26 percent for two additional years.


Wind energy has a different tax incentive called the Production Tax Credit (PTC). The PTC is a tax credit that applies to each kilowatt-hour (kWh) of energy a wind turbine generates and delivers to the grid or the end user. At the end of December 2020, Congress extended the PTC at 60% of the full credit amount, or $0.018 per kWh, for another year through December 31, 2021. In 2020, the credit was 60% of the full credit amount. Under the new PTC legislation, qualifying wind projects must have begun construction by December 31, 2021.

California’s solar and wind energy curtailment:

Graph 1 depicts the increasing amount of utility-scale solar and wind energy that is being curtailed in California since 2015. Federal tax assistance in the form of the ITC and PTC have enabled renewable energy to be more competitive with conventional, fossil fuel generation sources.

Graph 1 – California’s solar and wind energy curtailment increase 2015-2020

In 2020, California curtailed over 1.5 million MWh of solar and wind energy, or 5% of the state’s utility-scale solar production, according to the U.S. Energy Information Administration (EIA). In the early afternoon hours of March 2021, the California Independent System Operator (CAISO) curtailed an average of 15% of its utility-scale solar output. The reason for curtailment is that production from solar and wind generators exceeded demand.

To help meet California’s target of 50% renewable generation by 2025, CAISO plans to add another 1.6 GW of utility-scale solar capacity and 0.4 GW of onshore wind turbine capacity in 2021. Combined, these two technologies represent 44% of CAISO’s total capacity additions in 2021. Increases in renewable energy curtailments have followed an increase in new renewable capacity additions to meet this 2025 directive, while solar capacity additions are causing high totals of solar power curtailment.

Graph 2 shows the impact of solar energy curtailment by month for Jan 2020 to Jun 2021, with the highest curtailments in May through Sep.

Graph 2 – CAISO solar energy curtailment Jan 2020 – Jun 2021

Source: EIA

In order to use all of the renewable energy produced and to avoid curtailments, CAISO is evaluating more storage. California is commissioning several major utility-scale battery projects this year and plans to add 2.5 GW for 2021 within CAISO.

Please see my earlier Linkedin article, “The Case For More California Energy Storage:, and “Energy Storage Enables Supply Demand Optimization”,

California contributed 31% of the nation’s energy storage capacity additions in 2020, and that number may be on a course to expand exponentially as California accounts for 40% of power capacity planned between 2021 and 2023. These planned additions put the Golden State in line to meet its energy storage requirement by 2024.

The industry has been pushing for a stand-alone energy storage investment tax credit of 26%, which currently only applies to solar or solar-plus-storage projects.

Action to reduce curtailments:

  1. Encourage battery storage for residential and commercial customers
  2. Increase battery storage systems deployment throughout the grid
  3. Hydrogen-based energy storage
  4. CAISO’s Energy Imbalance Market to allow customer outside of CAISO to buy surplus energy
  5. Increase customer demand response with real-time energy prices

With more curtailment, and more capital required for storage, this is one of the reasons that even with the lower cost of solar and wind, the end-user electric retail customer in California has seen a 3.31% annual increase in prices from 2011-2019 as shown in Graph 3. California electricity prices rose 6.54 times more than the rest of the U.S. during this period.

Graph 3 – Electricity prices in California 2011-2019

The future solar and wind costs and need for tax credits:

In light of Graph 4 which depicts the production cost of energy for solar and wind compared to other generation sources, solar and wind are now the cheapest electricity generation sources available. It begs the obvious question: If solar and wind are the cheapest sources of electricity, why are all U.S. taxpayers subsidizing their construction with tax credits?

Graph 4 – Levelized cost of energy for current generation alternatives



  1. Curtailments of solar and wind, which have enjoyed federal tax credits, are costing all of the federal tax payers in the country
  2. The cost of California curtailments alone are in the $35 million range for approximately 1.5 million MWh annually
  3. Increased solar and wind generation from new facilities will only increase energy curtailment unless steps are taken to accept all renewable energy when it can be produced

Copyright © June 2022 Ronald L. Miller All Rights Reserved

Matt Chester's picture
Matt Chester on Jun 10, 2022

There are too many good ways to use the solar and wind during peak generation that we shouldn't be curtailing, whether that's putting in storage, generating hydrogen, working desalination, or even tech opportunities like data centers / crypto mining. 

Roger Arnold's picture
Roger Arnold on Jun 11, 2022

There are indeed ways to use excess solar and wind energy during peak generation, but how many of them are good ways is not so obvious. It really depends on the criteria one. uses to define good. Given California's current drought, one would think that desalination, for example, would certainly be a good use. However, the cost of energy is only part of the cost of producing desalinated water. It's really no practical to have a very expensive facility with all the pumps and filters and plumbing connections of a large-scale desalination facility waiting around idle 90% of the time, just to catch the 10% of the time that cheap energy from excess wind and solar happen to be available.

It's possible, in principle, to have a society and an economy adapted to function on weather-dependent energy resources. It would be a very different kind of society than what we have now and take for granted.

Ed Reid's picture
Ed Reid on Jun 11, 2022

Long-duration storage would be the answer, were it available.

Roger Arnold's picture
Roger Arnold on Jun 13, 2022

Yes, it would be the answer, or a good part of the answer, provided that it were cheap enough. Energy storage is far from free. Lithium-ion battery packs, in principle, can store energy for weeks or months. It's just not remotely economical to do so. The capital cost per megawatt-hour of energy storage capacity is orders of magnitude too high to recoup if they only average a few charge-discharge cycles per year. And that's what's necessary to reliably meet demand during extended periods of low solar and wind production without resort to generation from fossil fuels.

Just as the economics of generation from fossil fuels is dependent on being able to use the atmosphere as a free dump for CO2 wastes, the economics of generation from wind and solar resources is dependent on being able to fall back on fossil resources when wind and solar are not able to meet demand. The wind and solar industry is parasitic on the fossil fuel industry, in the sense that it lives on revenue "stolen" from fossil-fueled power plants, while requiring that those plants remain online for backup when the wind and solar resources are not producing. The fossil-fueled power plants are forced to operate at low duty cycles, but they cost the same as if they were operating at full capacity.

That's not an accusation. It's an observation. It's the explanation for why California and Germany, the renewable energy champions of the developed world, have the highest electricity rates in the developed world. It's the price we've elected to pay for the avoided CO2 emissions that intermittent renewables enable, when they're producing. But it creates a large obstacle to actually achieving a net zero energy economy. A parasite can't live without its host. By hiding the true costs of wind and solar power generation, it also diverts us from pursuit of zero-emission power generation options that don't incur those hidden costs.

Ron Miller's picture
Ron Miller on Jun 13, 2022

Roger has some great comments! For excess renewable energy to be utilized, it may be for only a small fraction of each day's 24 hours, making the economics much more difficult. We need to look at new and early stage technologies that can move the needle on lower-cost, lower-emission energy. Solar and wind energy is fairly mature technology, with lowest production cost of alternatives. So why are we still subsidizing the lowest cost technology with our tax dollars? Shouldn't that be reserved for barrier-breaking technologies that we desperately need? 

Peter Farley's picture
Peter Farley on Jul 26, 2022

I agree with much of what you say but parasitic is not the right word. Thermal grids also have a lot of backup and in most cases the excess is subsidised in some way through reliability payments of some sort. In fact in the areas with well developed capacity markets the cost of the capacity market is far higher than the tax subsidies to renewables.

The US may well need 500 GW of thermal capacity to back up a renewable grid without additional storage but that is far less than the 850 GW that it currently has. In terms of investment it is even less The current thermal fleet has a replacement value of about $2trn. 500 GW of OC gas about 1/4 of that.

 I haven't worked out the numbers but a wind solar grid with enough capacity to generate 5,500 TWh of energy per year and 500 GW/2000 GWh of storage and 500 GW of OC/reciprocating gas would cost less to build and operate than the 2010 thermal/nuclear/hydro grid so backup or system resiliency costs would be lower 

Doug Houseman's picture
Doug Houseman on Jul 26, 2022

Lithium-Ion is the high cost, low operating life choice. It is not affordable as the long term storage.

Salt water pumped storage or drinking water based pumped storage (as SDCWA is doing) are far cheaper and more reasonable alternatives. 

Installed Lithium prices are $700-1200 per KWH, pumped storage is closer to $75-200 per KWH. 


Julian Silk's picture
Julian Silk on Jul 26, 2022


Peter Farley's picture
Peter Farley on Jul 28, 2022

You are correct, but the US can get to at least 70% renewables or 85% zero carbon before you need to invest too much in long term storage. Four hour storage covers peaks and nuclear and hydro do much of the heavy lifting in seasonal lows. Lithium in the form of smart charging of EVs will make a significant contribution, On current rates of growth there could be 180m EVs on the road in the US by 2035.  Even 150m EVs with an average 60kWh, a change in state of charge of 16 kWh, that is 2,400 GWh or 3% of demand for a week. It is as much storage as 2,000 Moss Landing batteries 

Doug Houseman's picture
Doug Houseman on Aug 2, 2022

No not really it can't. Now without massively overbuilding solar and wind to deal with seasonal issues (and abnormal events like the Polar Vortex). 

At 20% you will see spring curtailments in most parts of the US, and significantly lower production in the winter. 

EV's are not going to be the answer that you hope for, if people are actually going to use them to commute and go on vacations and such. Yes, they offer a lot of storage, but they drive fewer miles in the summer and winter per KWH than they do in the spring and fall (Cabin HVAC). 

People don't like to drive to work in the morning almost on "E", so they want plenty of energy in the tank. 

In a couple of V2G pilots we are finding even in the summer school buses are not connected to the charger anywhere as often as the "experts" thought they would be. 

We also find that in talking with EV owners, in an emergency they are happy to power their own home, but much less so to help the neighbor, and even less likely to help the "grid". A lot of incentive or change management will need to happen. 

EVs are great for use of excess energy, not so great for putting it back on the grid, after all they were designed as transportation, not mobile grid storage. 

Richard McCann's picture
Richard McCann on Jun 14, 2022

This calculation looks at only side of the equation. These curtailments are only about 1% of total generation in California and about 3% of total utility-scale renewables. So adding new renewables means that we will get at least 97% of the output of those plants. There's no reason to delay adding renewables simply because we aren't getting 100%--that's a case of making the perfect the enemy of the better. And much of this problem will be resolved beginning in 2024 with the retirement of Diablo Canyon 1 and then Diablo Canyon 2 in 2025. That baseload resource is the real source of these curtailments because it can't load follow.

Ed Reid's picture
Ed Reid on Jun 15, 2022

Hopefully a load-following capable, dispatchable baseload resource will be available to replace Diablo Canyon

Peter Farley's picture
Peter Farley on Jul 29, 2022

Capacity can be load following i.e. dispatchable or baseload

Roger Arnold's picture
Roger Arnold on Jun 17, 2022

That comment about closing Diablo Canyon is telling. It illustrates the problem with intermittent renewables, while exposing the true motivation of the wind and solar industries. It's not to reduce carbon emissions to the atmosphere, it's (surprise!) to make money. By removing a competing provider of zero-carbon energy, shutting down Diablo Canyon creates a larger overall power market for wind and solar resources to play in. That means they won't have to curtail their output as often. That's important for them, not because of the minor loss of revenue to them from the curtailed energy production, but because whenever there is ANY curtailment within a market region, the wholesale price of all power produced goes to zero or negative. Wind and solar producers can't make any money on the wholesale market if there's any surplus production, because the clearing price for the wholesale power auction will be zero or negative. (It goes negative due to subsidies for production. It's better for a producer to pay a customer to take their electricity than to lose the subsidy by not producing it.) So even though shutting down a perfectly good zero-carbon power plant will result in higher carbon emissions, it's in the financial interests of the wind and solar industries to push for doing so.

Richard McCann's picture
Richard McCann on Jul 14, 2022

It's not the renewable industry that is opposing continuation of operation of Diablo Canyon. It's various ratepayer groups who know that the costs will be excessive, and that a large continuous operation baseload resource only exacerbates our generation balancing issues. (CAISO rules prevent dispatching of Diablo, which can't ramp effectively anyway.)

Michael Keller's picture
Michael Keller on Jun 14, 2022

At the risk of stating the painfully obvious: stop building unneeded power plants (solar & wind); stop giving tax payer money to wind and solar power plants; stop mandating the use of renewable energy. 

Doug Houseman's picture
Doug Houseman on Jun 15, 2022

Thinking just Battery storage is way too narrow of thinking, there are over 100 different non-battery choices for storing energy, some of which are far more efficient than battery storage. 

California needs 10s if not 100s of terawatt hours of storage by 2050, if they are really going to run on solar as many advocates are demanding. 

Batteries are one of the most expensive (total life cycle) choices to store energy. 

Joe Steinke's picture
Joe Steinke on Jun 21, 2022

California curtailment is a small fraction of the grid.  $39 million savings in federal tax credit will buy about 78 MWh utility scale battery storage and less than 30 MWh residential, not accounting for the 85% round trip efficiency or the 80% DOD limits on the battery storage.  The problem is that California curtails most of the renewable electricity in the spring, and for large portions of the year there is little to none.   Financial models on building battery storage, hydrogen electrolysis, pumped storage, CAES, .... to capture this lost generation should be done.  The results will be some of the most expensive electricity "saved".   

Ron Miller's picture
Ron Miller on Jun 21, 2022

Joe, good points about the cost of energy storage. Why not be innovative and offer Time Of Use Electricity rates to soak up excess energy by giving consumers an incentive to do so, thus translating energy use to that time of the day that energy is more available and less expensive? Market incentive vs. technological, physical asset investment could be the cheaper way to go.

Joe Deely's picture
Joe Deely on Jul 18, 2022

You mean like this?

PG&E Time of Use

or this

SMUD Time of Day Rate

or this

SCE Time of Use



Joe Deely's picture
Joe Deely on Jul 16, 2022

California has a huge gap between demand in summer vs demand in the rest of the year. If you build enough solar to satisfy summer demand then you will have too much for rest of year. Pretty simple.  Curtailment is here to stay.

That said, this is basically "free" generation and power consumers will step in to figure out how to use this energy. Battery storage is getting cheaper and CA will see a huge increase in storage over this decade.

For example, yesterday the output from batteries discharging in evening passed nuclear generation on the CAISO grid for the first time - 2,380 MW. This will easily grow to over 5GW by 2025 and at least 10GW by 2030.


Michael Keller's picture
Michael Keller on Jul 19, 2022

Not so sure “free” is accurate. Renewable energy gets a production credit paid for by the taxpayer when the units are running, hence the strong push to produce energy, even when it is not needed.

If the power is excess, turn off green energy.

Ron Miller's picture
Ron Miller on Jul 20, 2022

Michael, solar gets the Investment Tax Credit upfront, while wind gets the Production Tax Credit as energy is generated. If no wind generated, not PTC to the developer of the wind farm.

Michael Keller's picture
Michael Keller on Jul 21, 2022

Just made my point. Developers have every reason produce power to get the production credit. That distorts the markets. Sell for just above the production credit and that price will be the lowest offering, acing out all other producers. The unreliability of the offering is not accounted for in the transaction. Basically, you can run all other producers out of business, 

Peter Farley's picture
Peter Farley on Jul 26, 2022

You can't run them out of business if you are aonly producing 50-60% of the time and only supplying 15% of the annual load.

Michael Keller's picture
Michael Keller on Jul 26, 2022

Actually, you can run your competition out of business. Power plants have fixed costs like debt repayment and return on investment (profit). If the plant cannot bring in enough revenue to cover fixed costs, the asset becomes insolvent. The facility’s capacity factor and price received for energy must be high enough to cover fixed costs. If subsidized renewable energy sells energy just above the subsidy level, all other generators will quickly become insolvent. The market sell price of the green energy plant is much too low flow the other generators too survive.

Peter Farley's picture
Peter Farley on Jul 31, 2022

Wind and solar farms also have fixed costs. Further almost by definition wind and solar plants receive lower prices than FF plants, because the FF plants still operate in periods of low supply and therefore higher prices.

If gas could be supplied at $1/GJ there would be no case for wind and solar. If gas is $10/GJ, annual power supply is cheaper if investment cost is doubled but fuel cost is reduced by 30%.

For example a region needs annual supply of 6,000 GWh with a peak of 1,200MW. It can install six 250MW gas generators to guarantee 99% availability at peak times ($1.5bn) roughly $250m/y in fixed and non fuel operating costs and burn about  $570m of gas = $800m/y.

Or it could add $1bn of tracking solar 850 MW which would meet 1/3rd of demand with fixed costs of $100m and O&M of $25m and reduce gas costs by $190m. i.e. a solar/ gas is cheaper than gas alone. A detailed analysis of when demand peaks occur may reduce the number of gas turbines by one further improving the gas/solar advantage over pure gas. 

Extending the calculation to include batteries and or wind further improves the renewable with battery gas backup cost advantage

Ron Miller's picture
Ron Miller on Jul 20, 2022

Joe, excellent data and points made! Thanks, Ron

Peter Farley's picture
Peter Farley on Jul 26, 2022

Any grid to be reliable must have excess capacity for the worst minute, hence it will have about 30-50% excess capacity over a whole year. (The current US grid is about 80%), While near zero marginal cost energy will encourage applications to soak up some of the excess, the new applications themselves will have to have very low fixed and labour costs to offset low energy availability, hence a high renewable system with less than 20-25% curtailment of wind and solar is almost unattainable. Similarly if you were lucky enough to have enough hydro to back up the wind and solar, by definition it would be curtailed when wind and solar output was high or demand low.

Julian Silk's picture
Julian Silk on Jul 19, 2022

Three things with regard to this post:

1)  It would be interesting to see what the experience is with the Nipomo installation of lithium-ion batteries in considering whether this curtailment is significant or not.

2) I agree with Doug Houseman and Joe Steinke - other storage mechanisms, especially pumped storage hydro, could be tried to use up the excess generation and reduce the duck curve.  

3) TOU rates have a checkered history in California, as in

If you look at them cynically, can they be seen as a type of subsidy for wealthy residents who can afford battery storage during off-peak hours, and an undue burden on low and moderate income residents?  If you are going to do them, shouldn't there be some sort of program to try to level out benefits and costs across income?

Ron Miller's picture
Ron Miller on Jul 20, 2022

Julian, interesting idea about leveling the playing field for benefits for all ratepayers in CA, not just benefitting the riches part of society. A good idea, but could be difficult to implement to get the equity that you propose. Similar to the residential program in 2006 in Colorado, where the folks applying for the almost 50% upfront rebate for solar were the ones making >$200k per year in salary and living in a $1 million+ home. As they had solar installed, their utility bill declined, thus their 2% surcharge on their bill to support solar evaporated, while the other ratepayers who did not have the cash for solar continued to pay their 2% to subsidize the rich folks. A reverse Robin Hood event unreported.

Julian Silk's picture
Julian Silk on Jul 21, 2022

Right.  I am assuming that the 2%+ surcharge to support solar disappears, and thank you for pointing that out.  It is sort of absurd to have this surcharge and curtailments at the same time.

Ron Miller's picture
Ron Miller on Jul 21, 2022

Julian, in Colorado, I think the 2% surcharge is still being collected.

Julian Silk's picture
Julian Silk on Jul 20, 2022

Let me just add that some type of publicly-funded battery or other storage for urban areas, or, more controversially, some type of carbon-capture funding for these areas, might be a feasible way of reducing the curtailments in a fair way.  People here should be aware of some interesting research on urban heat islands, at

This research shows the heat islands have a nonzero warming effect, and so cooling them down might have benefits for others than just the residents.

Ron Miller's picture
Ron Miller on Jul 20, 2022

Julian, good ideas. 

Julian Silk's picture
Julian Silk on Jul 22, 2022

Ron, this is an important point, and thank you again for bringing it up. I want to be very careful in addressing it, because it seems hard to get any reading on what fraction of the curtailments affect Colorado.

1) An analysis of the curtailments that you and others will find sympathetic is at

2) An article that discusses what Colorado is actually doing in terms of transmission is at

This leads to the obvious question of whether it is least cost but still good policy for Colorado to make a big investment in transmission upgrades. You get rid of the surcharge, make some sort of payment to the farmers the article talks about, and the transmission gets improved. When California needs the electricity, it is there at lower waste, and when it doesn't, the electricity can be shifted around in Colorado. There would probably be a need for increased storage in Colorado, but is this mixed policy a less expensive one overall for the U.S. west than the experiment at Morro Bay, as in

multiplied a number of times, as it seems it will be, or the continuing curtailments?

Ron Miller's picture
Ron Miller on Jul 22, 2022

Julian, it is a shame that we as a country cannot syphon off the floodwaters of the Missouri/Mississippi Rivers during the spring thaw period and pump to Colorado where we have elevation for hydro pumped storage facilities acting as an energy battery. For the right price, perhaps deliver water to the Colorado River during the subsequent summer to feed Arizona and California?

Julian Silk's picture
Julian Silk on Jul 25, 2022

Not a bad idea, but expensive plus.  I can just see the folks at the Missouri River Lodge having a fit if the construction started near there.

Roger Arnold's picture
Roger Arnold on Jul 25, 2022

Ron, you're touching here on one of my pet project ideas. It would be easy to divert some of the spring runoff that flows into the Missouri (via the Yellowstone River) so that it flows instead to the adjoining Green River watershed. The Green then flows into the Colorado. Flaming Gorge Reservoir on the Green River around the Wyoming-Utah border is a giant; it could easily store a pulse of heavy spring runoff for slow release over the rest of the year.

The amount of water that could be diverted this way isn't huge, because it would only be drawing from headwater sources at altitudes above 7000 feet. Probably a few hundred thousand acre-feet. But it would help. It shouldn't harm the Yellowstone, because it would only be diverting rapid snowmelt waters that would otherwise rush uselessly down to the Missouri. In that season, the Missouri definitely doesn't need the excess flow.

Even better would be a project to join Laguna Salada, just south of the US - Mexico border near the mouth of the Colorado, with the Sea of Cortez / Gulf of California. Laguna Salada is a large salt playa about 12 meters below sea level. It used to flood regularly in the spring, when the Colorado still reached the Gulf. In a couple of decades, rising sea levels will wash away the broad low sand bar that separates Laguna Salada from the GoC. That will leave Laguna Salada permanently flooded. Evaporation from a flooded Laguna Salada will put moisture equivalent to about 4 million acre-feet of water into the air flowing variously northwest, north, or northeast from the northern GoC. Most of that moisture will subsequently return as precipitation in the Colorado and Rio Grande river basins. If we can negotiate a mutually beneficial plan with the Mexican government, we won't have to wait 20 - 40 years for rising sea levels to solve our Southwestern drought problem for us.

Peter Farley's picture
Peter Farley on Jul 26, 2022

This is a silly argument. Ever since the first generator was installed there were curtailments. i.e. the plant not running at 100% of rated capacity while it was online. The US grid has some 850 GW of thermal and nuclear capacity and yet averages about 380 GW output. Assuming 95% availability or just to be conservative 90% availability that  850GW is producing just under half its expected capacity or has 50% curtailment. 1% is amazingly good

Roger Arnold's picture
Roger Arnold on Jul 27, 2022

Curtailment of a resource whose marginal cost of production is zero (wind or solar) is a different matter than "curtailment" of a dispatchable resource whose marginal cost of production must include at least the cost of fuel. What makes them different is the auction system for the wholesale power market.

Owners of generation assets wishing to sell into the wholesale market bid in what they think expect to be able to supply at the lowest price they can accept without losing money. I.e., at their marginal cost of production. The auction authority tallies the bids to arrive at a clearing price for the auction. The clearing price is the lowest price such that the total supply proffered from all bids submitted at that price and below is sufficient to meet all orders to buy at that price and above. After the clearing price for the auction is found, it defines THE market price of power for all offers and orders submitted for that auction. Orders to buy bid in at a price above the clearing price are served at the clearing price. Likewise offers to sell bid in at a price below the clearing price are served at the clearing price. Orders to buy bid in at a price below the clearing price are shut out, as are offers to sell bid in above the clearing price. That actually makes sense, when you understand that bid prices for both buyers and sellers are supposed to be "walk away" prices: the maximum a buyer would be willing to pay or a seller would be willing to accept before walking away from the transaction.

The problem that this system creates for wind and solar resources -- or any resource whose marginal cost of production is zero or negative -- is that whenever the total generation proffered from such resources meets or exceeds total demand, then the auction clearing price will be zero or negative. It will be so for all sellers bidding into the auction. Nobody will make anything (beyond subsidies) for the power they produce.

Wind and solar resources are absolutely dependent on generation sources with high marginal production costs to establish auction clearing prices high enough to allow them to recoup their investment costs. But for that to happen, it's essential that wind and solar resources be unable to supply 100% of demand most of the time. Either that, or their owners must conspire to systematically withhold a portion of what they could supply from the auction.

If you're thinking "Well, that's a stupid system", I can't disagree. Is there any way to fix it? Yes, but none that I can see that don't run strongly against the grain of the free market ideology of our current economic system.

All generation for the grid should logically be owned by a single entity that can look at systemwide demand and available supply options. It would then make dispatch decisions based on what made the most sense for the utility system and its customers. Oh, but that's pretty much how it was in the "bad old days" before deregulation, is it not?

Michael Keller's picture
Michael Keller on Jul 27, 2022

The “Dutch auction” model for generation is just plain dumb and the result “ivory tower” thinking from academics. Such markets are based on an irrational underlying philosophy that believes the government can replicate a free market. That is just plain nonsense. The end result is a marketplace manipulated by politicians and the investment class. California provides a perfect example of the government creating chaos. The Texas market (ERCOT) demonstrates a similar folly of the Dutch-auction approach to power markets.

Accept the obvious, power generation and distribution are inherently monopolistic. Simply regulate the market, with the objective of reasonably priced and reliable energy. Period.

Peter Farley's picture
Peter Farley on Jul 28, 2022


Michael Keller's picture
Michael Keller on Jul 29, 2022

See Kansas state laws on subject. Generation and distribution are regulated. Rates are reasonable and process does not involve Dutch auctions.

Peter Farley's picture
Peter Farley on Jul 29, 2022

You are correct on both counts i.e. how the market works and how to fix it. Although I have seen negative prices in coal dominated markets as well if demand falls faster than the coal plants like to ramp down, on a mild Friday night for example or perhaps early on Monday morning where they know they have to ramp up before the demand  

Ron Miller's picture
Ron Miller on Aug 1, 2022

Peter, are you sure the 850 GW is a baseload plant and not a gas peaker unit that was never designed to run 24/7? You may be comparing apples to oranges in mixing baseload vs. peaker units for thermal.

ryderbellamy bellamy's picture
ryderbellamy bellamy on Jul 29, 2022

The capital cost per megawatt-hour of energy storage capacity is orders of magnitude too high to recoup if they only average a few charge-discharge cycles per year. That's what's necessary to reliably meet demand during extended periods of low solar and wind production without resort to generation from fossil fuels.

mapquest driving directions to the Burger King fast food restaurant near Washington

Peter Farley's picture
Peter Farley on Aug 1, 2022

or we could do what we always did and install excess generation capacity and accept that sometimes you can't sell all you can produce 

Michael Keller's picture
Michael Keller on Aug 2, 2022

Agree, need excess generation. However, I think more accurately, at times, you may not make money trying to sell your energy. You also may end up having to pay to put your energy into the grid. May end being a really poor investment unless you can get the taxpayer and consumer to subsidize you facility. Pretty much describes green energy.

Julian Silk's picture
Julian Silk on Aug 8, 2022

This isn't the IOU era, not even in California.  If you are a supplier of renewable energy, and you aren't going to be paid your costs up front, and you don't have any guarantee that the power will be used to take to the bank, you won't supply.  The various subsidies will cover part, but no major supplier will build anything as expensive as floating offshore wind facilities, which will probably be the next big issue in California, without some certainty of making a profit.

Ron Miller's picture
Thank Ron for the Post!
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