Too Much Sun? Heavy Focus on Solar Might Create Volatile US Electricity Markets
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Too Much Sun? Heavy Focus on Solar Might Create Volatile US Electricity Markets

24 January 2024 / Article

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During the United Nations’ COP28 climate conference, 123 national economies committed to tripling renewable energy generation capacity by 2030.1 Much of that increase will likely come from solar, but a greater emphasis on solar energy in the US might lead to increasing market volatility, negative wholesale energy prices in some regional electric grids, and potentially even a continued reliance on nonrenewables.

Trusted Insights for What’s Ahead™

  • Solar photovoltaic technology is now the lowest-cost source of electricity in most places around the world.2 Businesses can take advantage of these low (and falling) prices by using their own solar equipment or purchasing solar energy even in less sunny climates.
  • However, allowing solar to become the dominant source of energy might create greater volatility in US electricity wholesale markets and potentially even negative prices during daytime hours. While ultralow wholesale prices may seem attractive, they disincentivize capital investments in other renewables such as wind energy and lower the use of other standby power sources based on market conditions, ultimately increasing their nonpeak prices.
  • Volatile market conditions can only be avoided by retaining high-use baseload sources such as nuclear, investing in grid and site energy storage, and expanding grid transmission capacity. Businesses can benefit from investing in on-site storage such as high-capacity batteries and potentially even shifting their highest-demand operating hours to the middle of the day.

[1] COP28 UAE, Global Renewables and Energy Efficiency Pledge, 2023.

[2] International Renewable Energy Agency (IRENA), Renewable Power Generation Costs in 2020, June 2021.

During the United Nations’ COP28 climate conference, 123 national economies committed to tripling renewable energy generation capacity by 2030.1 Much of that increase will likely come from solar, but a greater emphasis on solar energy in the US might lead to increasing market volatility, negative wholesale energy prices in some regional electric grids, and potentially even a continued reliance on nonrenewables.

Trusted Insights for What’s Ahead™

  • Solar photovoltaic technology is now the lowest-cost source of electricity in most places around the world.2 Businesses can take advantage of these low (and falling) prices by using their own solar equipment or purchasing solar energy even in less sunny climates.
  • However, allowing solar to become the dominant source of energy might create greater volatility in US electricity wholesale markets and potentially even negative prices during daytime hours. While ultralow wholesale prices may seem attractive, they disincentivize capital investments in other renewables such as wind energy and lower the use of other standby power sources based on market conditions, ultimately increasing their nonpeak prices.
  • Volatile market conditions can only be avoided by retaining high-use baseload sources such as nuclear, investing in grid and site energy storage, and expanding grid transmission capacity. Businesses can benefit from investing in on-site storage such as high-capacity batteries and potentially even shifting their highest-demand operating hours to the middle of the day.

[1] COP28 UAE, Global Renewables and Energy Efficiency Pledge, 2023.

[2] International Renewable Energy Agency (IRENA), Renewable Power Generation Costs in 2020, June 2021.
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Author

Alexander Heil, PhD

Alexander Heil, PhD Alexander Heil, PhD

Senior Economist, ESF Center
The Conference Board

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