Negative prices: how they occur, what they mean

26 July 2019

Prices in the wholesale electricity market are determined by supply and demand. Energy generators offer to supply the market with specific amounts of electricity at particular prices. The Australian Energy Market Operator stacks the offers for each five minute block of time in ascending price order and then progressively schedules them into production to meet demand, starting with the least-cost bid.

Negative prices occur when supply offered at negative prices is greater than demand. These events generally occur in the middle of the day when generators (i.e. rooftop solar, large-scale solar, wind and coal-fired generators) are competing to dispatch their energy.

Negative prices are a signal to either increase demand or reduce supply. Intermittent and fast response energy sources (such as solar, wind, peaking generators) can stop and start in relatively short spaces of time to avoid negative price periods. Coal-fired generators however, incur significant costs stopping and starting and require many hours to restart. This means they continue generating throughout negative pricing periods as it is more cost-efficient to incur the costs of negative pricing than shutting down and then starting up again. This ensures that they are available to meet peak demand in the late afternoon and evening once the intermittent sources such as rooftop solar and large-scale solar are no longer available.

It is important to note, negative prices occur in the wholesale electricity market and do not occur in the retail electricity market.

As a publicly-owned generator, Stanwell operates in a manner that keeps downward pressure on prices, meets market rule requirements, and ensures its power stations are available to provide secure and reliable electricity supply when Queenslanders need it.

We are working to improve the flexibility of our plant so we can meet consumers’ changing demand needs. Learn more about our flexible plant trials.