WHY DID SPOT ELECTRICITY PRICES BRIEFLY FALL TO ZERO?

On the morning of May 26, 2025, something quietly extraordinary happened in India’s electricity market. As monsoon clouds rolled gently across the skies in parts of North and Western India, electricity prices on the Indian Energy Exchange (IEX) fell to near zero. For several hours, power was essentially free. Electricity traded at a mere 11 paise per kilowatt-hour between 9 am and 1 pm, cheaper than the platform’s transaction fee. It was a moment that revealed just how dramatically India’s energy landscape is changing, thanks to one powerful force – the Sun. India has rapidly expanded its solar power capacity over the past decade. With ambitious national targets and falling panel prices, solar has become a cornerstone of the country’s renewable energy push. On sunny days, especially during late morning and early afternoon, solar panels across India collectively generate tens of gigawatts of electricity. This surge in midday solar generation is creating a new challenge and opportunity for the grid.

Most electricity in India is distributed via long-term contracts called Power Purchase Agreements (PPAs), where state-run utilities agree to buy fixed quantities of power at pre-negotiated rates. These agreements provide price stability, but they also limit flexibility. However, about 15% of India’s electricity flows through short-term markets. Of that, a significant portion trades on real-time or day-ahead spot exchanges like the IEX. In these exchanges, electricity supply and demand fluctuate dynamically. Prices are determined by competitive bidding, with generators submitting the price at which they’re willing to sell, and buyers like industrial consumers and utilities bidding for the power they need. On May 26, the sun was generous, but demand was modest. As a result, solar producers overwhelmed the exchange with low-cost electricity. Since solar has virtually zero marginal cost, the sunlight is free; after all, these producers undercut more expensive fossil fuel plants. Prices plummeted.

This isn’t just about price. It’s also about timing. Electricity demand tends to peak in the evening, when people return home, lights and appliances are turned on, and commercial districts remain active. But solar production peaks in the middle of the day. This mismatch creates what’s known globally as the duck curve, a graph showing a sharp midday drop in net demand as solar fulfils much of the load, followed by a steep rise in the evening as solar generation fades. Grid operators must then ramp up other power sources quickly to fill the gap, often relying on coal, gas, or hydropower. This rapid shift presents both technical and economic challenges.

In India, renewable energy sources like solar and wind have must-run status. This means grid operators are obligated to accept their electricity into the system, regardless of demand levels. That rule is crucial for encouraging renewable adoption. But it also means that during certain hours, especially when demand is low, the grid receives more electricity than it can use. Conventional plants, such as coal or gas, aren’t always nimble. Many can’t shut down and restart easily. To avoid technical risks or start-up costs, they may continue generating power even when it’s not needed. The result is an oversupplied market where prices collapse.

In countries like Germany or parts of the US, electricity prices have occasionally dipped below zero. In such cases, generators pay buyers to take their power. It sounds irrational until you factor in fixed subsidies and technical constraints. Some Indian solar plants, for example, are backed by contracts that guarantee payment at ₹2 to ₹3 per kilowatt-hour. Even if they sell on the spot market at a loss, they’re still earning money overall. So far, India hasn’t seen negative pricing, but with renewable penetration rising and storage still limited, it’s no longer a far-fetched scenario.

The May 26 price crash is not just a one-off blip. It’s a signal that India’s grid is entering a new phase. Battery systems and pumped hydro storage will be vital to absorb excess solar during the day and release it during evening peaks. Incentivising consumers, especially large industries, to shift consumption to daylight hours could smooth demand curves and stabilise prices. Thermal plants must adapt to operate more flexibly or risk becoming uneconomical during solar-dominated hours. A smarter, more responsive grid with advanced forecasting and automation will be key to managing supply-demand imbalances. India’s goal of 500 GW of non-fossil capacity by 2030 is no longer just a slogan. It’s reshaping the power market in real time. The events of May 26 are a clear sign: the sun isn’t just shining, it is disrupting. And as the country continues its energy transition, zero-cost electricity might soon become a familiar feature of bright summer afternoons.

References

1. Mercom India – Real-Time Power Prices on IEX Crash to Zero as Rains Dull Energy Demand
2. Money Control – Electricity prices crash to zero on exchanges as cooler weather cuts May power demand
3. The Hindu – Spot electricity prices declined substantially in May, amid reduced demand: Indian Energy Exchange
4. Live Mint – Unseasonal rains, surplus supply send real-time power prices crashing on IEX
5. Image by studiogstock on Freepik