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The economics of negative price phenomenon in renewable-integrated electricity markets

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  • Rafizadeh, Nima

Abstract

Understanding how renewable energy integration affects electricity market efficiency and price formation is an important challenge in energy economics and environmental policy. Negative electricity prices, where generators pay to produce power, now occur with increasing frequency across wholesale markets, yet their economic drivers require better understanding. This paper addresses this gap by developing a theoretical framework linking generator behavior to market outcomes, then testing it empirically using over 14 million observations from New York’s wholesale markets (2010–2022). The theoretical analysis demonstrates that negative prices can achieve welfare-maximizing allocations under operational constraints and production subsidies. The empirical analysis, using binary response and count data models with high-frequency data, identifies a clear hierarchy of drivers: renewable energy integration emerges as primary, with solar energy reducing negative price occurrences while wind energy increases them. Weather conditions rank second in importance, while grid constraints show limited influence, contrary to policy focus on transmission expansion. These findings can inform policy discussions by suggesting that rather than suppressing negative prices through regulatory constraints, policymakers should preserve these efficient price signals while prioritizing technology-specific renewable policies and weather-responsive mechanisms over transmission expansion to enhance investment signals and market stability.

Suggested Citation

  • Rafizadeh, Nima, 2026. "The economics of negative price phenomenon in renewable-integrated electricity markets," Energy Economics, Elsevier, vol. 153(C).
    • Handle: RePEc:eee:eneeco:v:153:y:2026:i:c:s0140988325009168
    DOI: 10.1016/j.eneco.2025.109086
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    References listed on IDEAS

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    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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