In some European countries, your electricity bill can go negative — how is that even possible?

Electricity, like any other commodity in the world can be traded. Electricity grids between countries, especially in Europe, are interconnected, making it easy for countries to either buy or sell electricity as their demand varies. And just like shares, electricity is traded on a special electricity “stock exchange”. In Europe this market is called the European Energy Exchange.

The trading processes follows the normal rules of economics. If there is high demand and limited supply, the prices go up. In the reverse situation, the prices go down. Mostly though, people consume far more than generation plants are able to produce, so there is always a brisk trade in electricity. However, in recent years, the focus on renewable energy in Europe has seen a massive growth in wind, hyrdo and solar power generation plants. Aided considerably by generous government grants, these facilities are able to operate at a fraction of the cost of traditional fossil fuel or nuclear plants.

The problem with these renewable plants is that they rely on mother nature for their “fuel source”, and we all know how cranky mother nature can be. Around the end of 2012, Europe was indeed exposed to a very cranky mother nature, with violent storms lashing countries for weeks on end. While this was all rather unpleasant for the population, it was the perfect situation for two out of three renewable sources. Wind farms in France and Germany recorded their highest ever consistent energy production, while hydroelectric stations operated at peak levels as they battled to keep dam levels below dangerous.

This situation, coupled with the fact that many fossil fuel and nuclear plants prefer not to vary output due to the cost implications, lead to periods of electrical oversupply. Just like on any other stock exchange, when supply outstripped demand, there were no buyers. With no buyers, the price dropped. Normally, in this situation, the price would stop at zero and both sides sit staring at eachother waiting for the next move.

However, owing to the zero fuel input costs of wind and hydro power, coupled with the government subsidies for these energy types, renewable producers were actually able to sell their electricity at a negative value and still turn a profit. This rather peculiar and somewhat contrived situation lead to prices dropping into the negative hundreds of Euro’s per megawatt/hour.

But, don’t be expecting a radical drop in electricity prices anytime soon. These prices are more of an anomaly and usually happen in the early hours of the morning, lasting for a few hours at most.

(Source)