4 ms·

For the sake of the argument, let's accept the premise that variable demand requires variable pricing. Is there a technical reason price differentials have to

• mikeash 11y ago
  I'm pretty sure California is an example of a badly run system, and price differentials wouldn't be so big if it were run better. In an efficient market, peak prices wouldn't exceed the cost of storage pretty much by definition, because the utility would use storage to even out demand as long as it's cost effective. But I assume you mean whether it would happen without storage. That depends a lot on the underlying assumptions, I'd say. Does an efficient market mean one where you can build coal plants anywhere you feel like and pay only the cost of extraction, but not the cost of pollution? Or does it mean one where you pay the full cost of fossil fuels, rather than the weak and inconsistent controls we currently have? I think you'll almost always benefit from some storage. You'll get diminishing returns as you increase generating capacity to match peak load, so storage would become the cheaper option at some point (assuming you're not shedding loads for extreme peaks). Consider that no other industry operates on such a sharp just-in-time way, where supply and demand have to be matched on a second-by-second basis. Whether it's fruit or car parts or passenger airplanes, there's always some storage to allow slack in the system. The electrical grid historically hasn't been this way just because the technology wasn't there, but it's finally catching up.