I don't know how many people are aware of negative (wholesale) prices in the energy industry. They often come as a surprise to the layman, but were easily and correctly predicted by those who understood the game, way back when electricity was first mooted as a candidate for being commoditised and de-monopolised into a traded market. They would arise because some kind of pricing dynamics would be needed that disincentivised over-production.
Why would this be an issue? (a) The difference between peak demand (6 pm on a freezing winter's evening) and least demand (3 am on a hot summer's morning) is extreme, and both must be catered for, ideally via price signals; (b) quite a lot of electricity generation is "must run" - nuclear and run-of-river hydro being the traditional ones, but even back in the early nineties it was obvious that solar- and wind-power would be coming on in ever larger quantities. (Of course, in those cases "must run" is by green-policy fiat, whereas nuclear is to a large extent a safety issue.**) So there was always the logical possibility that must-run would exceed demand, at which point some generators whose marginal cost was zero might need to be offered a lower-than-zero price - i.e. paid not to generate.
And so it transpired, mostly in the German electricity market++ to start with. I've written about German power dynamics before: they are bizarre (the Energiewende is absolutely inane) and the cogniscenti weren't even slightly surprised when it started happening there. However, such was the widespread puzzlement in Germany itself^^, the leading technical stiftung in that country, Fraunhofer, started publishing minute-by-minute explanations of each and every instance. (This was when the examples were fewer than one a month. They soon became much more frequent, and the good Fraunhofervolk began to tire of doing these analyses.)
Short periods of negative pricing are now utterly commonplace in electricity markets around the world. (Dis)incentivising via price signals is not the only mechanism for balancing electricity grids, of course: grid operators typically retain the right to make generators switch off because they're told to. However, in the case of 'green' electricity (and sometimes other generators) there is often compo to be paid - part of the less-visible subsidy regime, even if no premium is paid for the electricity they do generate. But market mechanisms are best.
Rich Irony Now we come to the funny bit. The costs of constructing some types of renewable electricity generation sets are plummeting, especially for wind and solar; and of course the variable costs are close to zero. In several markets, they don't need the traditional type of subsidy - a guaranteed offtake price - any more. That's great. (There are other, less obvious subsidies on offer, such as not being made to pay for the trouble their intermittency cause the grid.)
But here's the thing. In many countries now there are auctions for who gets to build new generating plant, where bidding is for how much subsidy you'll accept - lowest bidders win. Already, some applicants have bid in at zero, meaning they don't need a cash subsidy at all ... Sometime soon, windfarms are going to start bidding in at "negative subsidies", i.e. they will be willing to pay in order to join the game!
Ain't markets wonderful?
** Of course the very existence of nuclear power is by policy-fiat, too
++ For afficianados, there was also an early (and quite unexpected) instance of a negative price in the UK gas market, where the underlying logic is the same, though conditions are rarely so extreme as in electricity. It was, in essence, a freak occurence, albeit wholly explicable after the event
^^ As noted here before, even educated and professional Germans truly don't understand how markets work
Technical Note (may safely be skipped): a word on one of the
technical spin-offs of all this. Some readers may be aware that
"traditional" modelling of the seemingly random and jerky behaviours of
spot prices in commodity markets uses "geometric brownian motion" as the
explanatory mathematical assumption to capture volatility, with its
associated parabolic function. It works brilliantly for
post-rationalising & analysing price evolution across all the "traditional"
commodities - metals, oil, agriculturals etc (in conjunction with a mean-reverting function, and
sometimes a seasonality function and a drift factor). It even worked
for modelling natural gas when that started to be traded, notwithstanding
spot prices in that market that were (and remain) vastly more volatile than
ever before encountered. But it doesn't work for power: (a) because the
extremes of electricity prices include blips that are more even extreme
than can be "explained" by a standard volatility function, however high you turn the dial; and (b)
brownian motion can't "explain" / represent negative prices! Another
function was required. I'm proud to say that Enron had people doing
original mathematics: and to cut through the heavy stuff (though I can
explain if you wish ...) the answer was an inverse hyperbolic sine (sinh-1), coupled with a Poisson distribution for the blips.
Now you know.