Industry Analysis
Apr 2, 2024

Understanding Economic Curtailment

What is economic curtailment risk and how do originators deal with it in PPAs?

When electricity supply outstrips demand, the grid can send negative price signals to discourage further generation. During these times, power produced by impacted generating facilities is - by definition - worthless.

This happens frequently in places like California. There's an overabundance of solar being generated in the middle of the day when the grid simply doesn't need more electricity. Historically, this phenomenon has also impacted wind generators in Texas during off-peak hours.

A $0 price floor is a PPA term designed to help protect offtakers from paying for renewable energy when power prices are negative. The generating facility and offtaker agree not to settle during these periods.

We looked at our marketplace data to see the prevalence of $0 price floors. 88% of bids included one, while only 41% of offers did.

As renewables continue to penetrate the grid, offtakers have grown increasingly weary of economic curtailment risk. Sellers that include a $0 price floor may have the advantage in securing offtake.

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