Tag: CAISO

Article: Negative Prices in CAISO

Posted on April 16, 2025 by REsurety - Blog

The Big Beau solar and storage project in California. Photo: Masdar

What PPA buyers and renewable developers need to know

Published by Factor This

Authored by Divita Bhandari, Senior Research Scientist, REsurety

The last few years have seen an increasing trend of negative power prices in the region served by the California Independent System Operator (CAISO), particularly in Southern California.

Negative prices in CAISO effectively drive down the average price of power during certain times of day, which has significant implications on the revenue for energy resources, particularly solar and storage. This, in turn, has significant implications for revenue received by any entity that has exposure to wholesale energy prices, such as project developers or Power Purchase Agreement (PPA) buyers.

What Causes Negative Power Prices?

Negative prices are driven by a variety of conditions on the grid that cause an oversupply of generation. The drivers to oversupply include low demand, inflexible thermal generation, substantial renewable generation (e.g., solar and wind), and transmission congestion. Negative prices in any region can be driven by some or all of the above conditions. While CAISO has historically been a market leader in the growth of solar energy, which is the key driver of negative prices in the region, substantial growth in solar builds is now appearing in other markets, such as the Electric Reliability Council of Texas (ERCOT) and the Midcontinent Independent System Operator (MISO). Thus, the negative prices seen in CAISO may be an early indication of how prices in other markets may evolve if solar resource growth continues at its current pace. This article explores the drivers of negative prices in CAISO and the broader implications of these trends.

*Figure 1: Frequency and magnitude of negative price occurrences in 2023 and 2024.*

Figure 1 above shows the frequency and magnitude of negative price occurrences in 2023 and 2024 in SP15, the price hub that covers much of Southern California. There were ~1,180 hours in 2024 that had below-zero prices (~13% of total hours throughout the year) compared with ~530 hours in 2023 (~6% of total hours). In addition, the median negative price in 2024 was ~ – $17 compared with ~ – $10 in 2023, indicating that both the frequency and magnitude of negative prices have increased over the last year.

Supply/Demand Balancing and Negative Prices

Generation oversupply during low-demand times primarily drives negative prices. Generation oversupply results from a combination of factors. Conventional generation (e.g., nuclear and certain thermal plants) are largely inflexible in their ability to ramp up and down to meet load. Solar and wind generation fluctuates based on weather conditions and cannot be adjusted to meet load. Transmission bottlenecks also prevent excess generation from being delivered to external regions. As a result, these periods of oversupply typically result in a surplus renewable generation.

In CAISO alone, utility-scale solar capacity has grown by ~8 GW between 2020 and 2024¹, with a large fraction of this growth occurring in Southern California. A high penetration of behind-the-meter (BTM) solar resources (e.g., rooftop solar) compounds utility-scale effects. California’s abundant utility-scale and BTM solar means a lot of clean electricity for CAISO’s grid, but during times of high solar generation and low overall and net grid demand, it can result in oversupply — causing solar curtailment and/or contributing to negative power prices. Figure 2 below shows the demand net of all wind and solar generation within CAISO between 2020 and 2024. In 2024, the average net demand during the midday hours (9 am-3 pm) has decreased by 45% since 2020. Given that the lowest cost generators get dispatched for energy production in the market first, this low demand results in the dispatch of lower cost resources to meet load.

*Figure 2: Demand net of all wind and solar generation within CAISO between 2020 and 2024.*

Solar Generation and the Price of Energy

So, what’s the link between solar generation and the price of energy? The wholesale energy price is dependent on the marginal cost of generators (i.e., the cost of producing an additional kWh/MWh of energy. Resources are dispatched based on the merit order principles, i.e., the power plants with lower marginal costs are dispatched before resources with higher marginal costs. The higher the availability of low or zero marginal cost resources, the lower the wholesale energy price will be. Solar resources have a low or zero marginal cost, which makes solar a very inexpensive generator.

The low cost of solar puts downward pressure on wholesale energy prices, particularly in hours of solar energy oversupply. Negative prices, however, are a result of certain generators submitting negative bids. A negative energy bid for a resource implies that rather than being paid to supply energy, the supplier is willing to pay the grid operator for this supply. This occurs because a generator can have multiple revenue streams beyond the wholesale price of energy paid by the grid operator. The generator may receive tax credits on a $/MWh basis or possibly get paid for the production of Renewable Energy Credits (RECs), both of which incentivize generators to produce energy even when the wholesale energy price is very low or negative. The generator may also have longer-term fixed-price contracts that compensate generators irrespective of negative wholesale energy prices or have resource adequacy payments that compensate the generator for being online and supplying available capacity to the grid. In all these cases, the generator has alternate revenue streams that rely on the MWh produced from the resource, meaning that the unit can generate energy and remain profitable despite the negative energy prices.

Transmission also has a key role to play in the price formation, as negative prices are exacerbated by significant congestion during the solar producing hours. Excess generation would typically be exported to other regions to meet demand. However, as solar generation during the mid-day hours increases in Southern California (i.e., SP15), the solar exports are restricted and are unavailable to alleviate demand in other regions due to the lack of transmission availability during the peak hours. This effectively traps the solar generation in Southern California and exacerbates the conditions of oversupply in the region, further driving down prices.

Negative prices can be a high risk for developers since they result in lost revenue driven by high renewable curtailments. In general, a decrease in the net demand would result in generation ramping down to meet the demand needs of the hour, as generation and demand must be balanced at all times on the grid. However, certain thermal resources, particularly nuclear, gas, and coal units, must continue to generate due to their inflexibility and high costs of ramp/shutdown. This situation of oversupply on the grid requires more flexible, low-cost resources such as solar and wind to be curtailed to maintain the demand and supply balance. When generation from a particular unit has been curtailed, it’s unable to earn any revenue that’s supplied on a $/MWh basis.

Negative prices can also place significant risk on energy offtakers/corporate buyers who are locking in prices through long-term PPAs. For example, with a fixed-price PPA, if the price is consistently higher than the wholesale energy price, then the buyer is at risk of losing money. This is because when prices fall to low or negative wholesale energy prices, the offtake agreement may still require the buyer to purchase energy at the higher contracted rates. Similarly, with a contract-for-differences (CFD) virtual PPA (VPPA), if the wholesale price too often falls below the CFD “strike price,” the VPPA could find itself underwater for the clean energy buyer. In these situations, it is essential to understand the negative price exposure and include protections such as “price floors” to hedge against negative prices and ensure that the buyer does not need to pay a high price for power during low-priced hours.

Solar capture rates (i.e., the annual generation-weighted price of solar generation divided by the around-the-clock [ATC] annual price) are an indicator of the revenue associated with solar in recent years. Lower capture rates imply lower revenues in the energy market. In SP15, negative prices have caused annual solar capture rates to plummet to less than 30% in 2024 and are expected to continue to fall going forward. This indicates that a utility-scale solar resource will make 70% less revenue than a resource that has constant generation across all hours of the year. Figure 3 below shows the comparison of solar capture rates in NP15 and SP15.

*Figure 3: The comparison of solar capture rates in NP15 and SP15.*

Solar and Storage Growth Going Forward

Despite these low capture rates, solar growth can be expected to continue in CAISO if alternate revenue streams continue to offset the low energy revenues, which will continue to contribute to negative prices. However, negative wholesale energy prices will also incentivize more storage builds since batteries can charge during the midday, low-priced hours. As evidence, battery capacity in CAISO has increased from ~ 4 GW in December 2022 to over 11 GW in June 2024².This capacity includes standalone, co-located, and hybrid resources. In this way, storage can offset the negative energy prices by charging when the solar would otherwise have been curtailed. This will reduce the magnitude and occurrence of negative prices and thereby increase solar capture rates in SP15. More importantly, storage will likely have a large impact on emissions by discharging during morning and evening peaks in demand, offsetting the generation of less clean and less efficient peaker plants. Negative energy prices and high solar curtailment rates will also provide a price signal indicating the value that building more transmission can have in relieving congested areas. Relieving congestion will eventually lead to lower curtailments and increased solar capture rates in SP15.

In the last few years, we have seen significant growth of solar buildout in other markets such as ERCOT and MISO. Based on MISO Futures, the additional solar expected to come online by 2042 ranges from 57 GW – 107GW³. Based on the ERCOT long-term system assessment (LTSA), the additional solar expected to come online by 2039 is ~ 29GW⁴. The current growth trends suggest we may start observing similar phenomena in these markets, with high amounts of solar generation driving down midday wholesale electricity prices, also known as the “duck curve”. This will have significant implications for the value of solar energy in these markets; while solar energy has historically been very valuable in ERCOT and MISO due to its ability to supply generation during periods of high demand and high prices, large amounts of solar additions will drive down net demand and prices. However, the extent to which solar growth leads to low and negative energy prices in other markets will depend on a number of other factors that drive price formation including the net demand growth, value of RECs, availability of production tax credits (PTCs), adoption of solar, and diversity of other resources, particularly wind and storage on the grid.

With these evolving dynamics, the risks for buyers and sellers must be carefully quantified and managed between different entities and require a careful assessment of future evolving fundamentals and uncertainty. As solar generation continues to gain momentum, solutions like storage and expanded transmission capacity will be key to managing these issues and ensuring a sustainable energy future.

_{This article contains a collection of information related to REsurety, Inc. and the commodity interest derivatives services and other services that REsurety, Inc. provides. Any statements of fact in this article are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. No responsibility is assumed with respect to any such statement, nor with respect to any expression of opinion which may be contained herein. The risk of loss in trading commodity interest derivatives contracts can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them or their company. Please be aware that past performance is not necessarily indicative of future results.}

¹ Jan 2020 Key Statistics: https://www.caiso.com/documents/monthlystats-jan2020.pdf
December 2024 Key Statistics: https://www.caiso.com/documents/key-statistics-dec-2024.pdf
²2023 Annual Report on Market Issues and Performance, Pg. 36
https://www.caiso.com/documents/2023-annual-report-on-market-issues-and-performance-jul-29-2024.pd f
³ MISO Future Report, Series 1A, https://cdn.misoenergy.org/Series1A_Futures_Report630735.pdf
⁴ 2024 Long-Term System Assessment for ERCOT region, https://www.ercot.com/gridinfo/planning

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Blog Post: Weather-Smart Power Price Forecasts and Carbon Impact Data Now Available Across All Seven U.S. ISOs in REsurety’s Platform

Posted on January 12, 2024 by REsurety - Blog

Companies can now make clean energy procurement decisions based on the lowest cost for carbon reduction across the entire U.S.

REsurety CEO, Lee Taylor explains how companies can now make clean energy procurement decisions based on the lowest cost for carbon reduction across the entire U.S. — Lee Taylor, Co-Founder and CEO

Authored by Lee Taylor, Co-Founder and CEO, REsurety

Up until now, it’s been impossible for clean energy companies to make informed clean energy procurement decisions across the country in a way that makes their budgets go as far as possible when it comes to reducing carbon emissions. As of today, REsurety’s platform changes all that with the availability of both Weather-Smart power price forecasts and Locational Marginal Emissions (LMEs) data that now cover all seven U.S. deregulated ISOs (CAISO, ERCOT, ISONE, MISO, NYISO, PJM, and SPP).

REsurety first launched its power price forecasts and Locational Marginal Emissions data in Texas’ ERCOT market in December of 2022. This renewables-rich market is important for many clean energy buyers, developers and investors, given the rapid rate of growth of wind, solar and storage projects across the state. Ever since then, our team of atmospheric scientists, renewable energy and power markets experts, and software engineers have worked tirelessly to bring our solutions into new markets, helping us reach today’s milestone: full coverage across all U.S. deregulated ISOs.

Locational Marginal Emissions data enables customers forecasting and measurement of the emissions impact of their clean energy purchases. Weather-Smart power price forecasts provides forward-looking views of power prices and wind and solar capture rates based on project-specific weather modeling across 40+ years of representative weather scenarios. Having both of these data sets available across all ISOs allows our customers to compare the cost-benefit of different clean energy project purchasing decisions on a nationwide scale, something that previously wasn’t possible.

Emissions-focused clean energy customers can now leverage the REsurety platform to optimize for: cost per MWh, cost per ton of carbon avoided, or 24/7 Carbon Free Energy. The platform was designed for the full spectrum of clean energy customers, from buyers who are running RFPs, to hydrogen developers maximizing the cost-effectiveness of their electrolyzer. Regardless of each customer’s specific priorities, REsurety is able to help buyers or their advisors, as well as their clean energy suppliers, identify the best projects to suit their needs using our off-the-shelf PPA Evaluator tool or a more bespoke advisory engagement.

If you would like to learn more, please contact us at: [email protected].

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Blog Post: CAISO Isn’t Just One More Market

Posted on August 1, 2023 by REsurety - Blog

David Luke Oates, author of CAISO Isn't Just One More Market — Author: **David Luke Oates**
*SVP of Power Markets Research*

REsurety’s customers buy, sell, and invest in clean energy across the country and around the world. To provide our customers with financial and carbon value insights across their full geographic scope, we have been working to expand the coverage of our Weather-Smart forecasts. We are pleased to announce that with our recent Q2 2023 Weather-Smart release, we now provide forecasts in CAISO as well as ERCOT and PJM.

CAISO isn’t just one more market: it is an indicator of what is coming across the country. With an aggressive clean energy policy regime and strong solar resource, solar penetration in CAISO¹ started growing early and is now the highest in the country. In 2022, solar penetration in CAISO was 28%, compared to 6% in ERCOT and 2.5% in PJM. But solar installations are now accelerating across the U.S. The changes CAISO witnessed in the last decade are in many ways a test case for what asset owners across the country can expect as solar penetrations grow.

The well-known LMP² duck curve highlights an important implication of increasing solar penetration. Historically, prices tended to be high in the middle of the day due to high demand for electricity and the need to run more expensive peaking generators to meet that demand. However, as solar penetration grows, zero marginal cost solar generation is increasingly available during mid-day hours, leading to a decline in daytime prices. Peak price hours shift to the morning and early evening, when demand remains high, but solar output is low. This change in diurnal price profile has a material impact on the value of solar generation assets.

Figure 1 shows the evolution of the CAISO duck curve as solar penetration has increased over time. In 2012, solar penetration in CAISO was very low, the market did not display a duck curve, and the solar capture rate was well above 100%. By 2019, solar penetration had reached 20% and the lowest priced hours were at mid-day, with notable spikes in the morning and evening. Solar capture rate had fallen to 69%.

ERCOT is in the early stages of a similar evolution. Solar penetration in ERCOT in 2017 was insignificant, there was no discernible duck curve, and the capture rate was 117%. ERCOT hasn’t yet reached a 20% solar penetration, but by using REsurety’s Weather-Smart system, we can forecast what might happen when it does. In our Baseline scenario, ERCOT reaches 20% solar in 2031. Prices display a strong duck curve and the capture rate falls to 56%.

**Figure 1:** LMP duck curve, solar penetration, and solar capture rate in CAISO and ERCOT at 0% and 20% solar penetration.
_{Notes: Y-axis represents the average price for each local-time hour divided by the annual average price. ERCOT prices reflect North hub real-time prices. CAISO prices reflect SP15 hub real-time prices. 2031 ERCOT forecast based on REsurety Weather-Smart system Q2-2023 release, Baseline scenario, averaged across all weather conditions. X-axis shows “hour-beginning” time. Capture rates reflect modeled hourly ISO-average generation profiles. Solar penetration reflects the combination of grid-scale and behind-the-meter solar generation.}

Increasing solar penetration also has an impact on the carbon abatement value of clean energy. In the LMP duck curve, daytime solar output drives low or zero marginal cost resources to the margin, reducing power prices. But in addition to low costs, these now-marginal resources often also have low or zero emissions rates³. Under these conditions, additional clean energy during daytime hours may have less carbon abatement value compared with clean energy produced at other times and locations.

In other words, markets with high solar penetration will likely display a Locational Marginal Emissions rate (LME) duck curve in addition to the familiar LMP duck curve. LMEs reflect carbon abatement value at each location in a power system in each hour in the same way that LMPs reflect economic value⁴. We can use LMEs to measure the decarbonization effectiveness of clean generation resources. Similar to capture rate, decarbonization effectiveness quantifies the realized carbon reductions as a percentage of the potential decarbonization possible with a clean generation resource with a flat output profile.

Figure 2 compares the LME duck curve in ERCOT and CAISO as solar penetration increases. As with LMP, the LME duck curve is not noticeable when solar penetrations are low and decarbonization effectiveness of solar resources is high – close to 100% in ERCOT. As solar penetration increases, the LME duck curve emerges and solar decarbonization effectiveness drops. In CAISO in 2019 when solar penetration was 20%, solar was only 81% effective at reducing carbon emissions. Our Weather-Smart LME forecasts show that when ERCOT reaches that penetration, solar carbon abatement effectiveness will similarly fall to 89%.

**Figure 2:** LME duck curve, solar penetration, and solar decarbonization effectiveness in CAISO and ERCOT at 2.5% and 20% solar penetration.
_{Notes: Y-axis represents the average LME for each local-time hour divided by the annual average LME. ERCOT LMEs reflect North hub and CAISO LMEs reflect SP15 hub. 2031 ERCOT forecast based on REsurety Weather-Smart system Q2-2023 release, Baseline scenario, averaged across all weather conditions. X-axis shows “hour-beginning” time. Decarbonization effectiveness reflects modeled hourly ISO-average generation profiles. Solar penetration reflects the combination of grid-scale and behind-the-meter solar generation. LME data not available in CAISO for low solar penetration.}

Financial and carbon abatement value are often the most important motivators for developing a new clean energy asset. Understanding how both value drivers are expected to evolve over time and across markets should be a key component of any investment decision. In practice, every asset is unique, with its own generation characteristics, network location, and contractual details. REsurety’s products and services are supported by decades of granular weather and market data as well as our proprietary Weather-Smart forecasting system and are well suited to addressing this complexity. These tools can help our customers to make better investment decisions, track the performance of their assets, and ultimately achieve more decarbonization at lower cost.

¹ Solar penetration refers to the proportion of the total demand for electricity met by solar generation and is often reported on an annual basis.

² Locational Marginal Price. Represents the financial value of power at a particular location at a particular time.

³ Daytime curtailment of solar resources is one of the drivers of low daytime prices and low marginal emissions intensities in the current CAISO market. Similar effects are reflected in our forecasts for ERCOT.

⁴ See https://resurety.com/solutions/locational-marginal-emissions/ for additional background on Locational Marginal Emissions.

About the author

David Luke Oates co-leads REsurety’s Research team. His team builds, tests, and deploys fundamentals and statistical models of electricity prices and emissions to support customer workflows. David Luke has over a decade of experience working in the electric power sector from positions in academia, consulting, and technology. Before joining REsurety, he was a consultant at The Brattle Group, supporting electricity market operators, utilities, and asset owners to address market design, asset valuation, and regulatory questions.

Dr. Oates holds a Ph.D. in Engineering and Public Policy from Carnegie Mellon University and a Bachelor’s degree in Engineering Physics from Queen’s University, Canada.

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