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This is the spot price in an extremely seasonal futures market. This article is clickbait garbage. I have a few clients in this space. Texas, through ERCOT is

This is the spot price in an extremely seasonal futures market. This article is clickbait garbage. I have a few clients in this space. Texas, through ERCOT is a deregulated market. The “electricity company” or REP (retail electricity provider) merely purchases futures from ERCOT (the market maker) and bills you for your usage according to the pricing plan you have with them. In the end your provider must purchase from ERCOT at least as many MWh as their customers use. Distribution and maintenance is handled by various regional companies and factored into the price by ERCOT The market price is like a futures auction, of a commodity where demand peaks in August. This is why the spot price can be so ridiculous. The thing is, nobody pays the spot price. If a REP must pay the spot price in August (because of inadequate hedging) they almost always immediately become insolvent. It’s the “third rail” of this industry, touch it and you die. At that point secondary measures kick in to ensure those customers are not without power. If you have more questions please reply.

tialaramex 7y ago
You mention that "nobody pays the spot price" but what effect does this price have then if nobody pays it? If I have a way to make, let's say, 30MW for up to 5 hours per day, and inject it into that system, could I get $9000 per MWh for that power during the period mentioned in the article? If I wouldn't get $9000 then what purpose does this price signal have? "Oh great, the notional price I won't actually get paid went up. I will be sure to increase the notional amount of electricity I don't actually make"
- jabl 7y ago
  Everybody (sane) is hedged. So while nobody per se pays the spot price, the spot price affects the parameters of the hedging contracts, PPA's, and whatnot.
- ryanmarsh 7y ago
  A few REP’s pay that price each year.... and they go out of business. The price is a reflection of the scarcity of generation and transmission capacity when its 101°F at 90% humidity and the entire state has the A/C on full blast. If you were plugged in with ERCOT as a generator (guessing you don’t have the millions to build one), and you were the last to get told to start up, and you were close to the source of the need, you most certainly could earn that much. That’s what “peaker plants” are. You’ve probably heard about how bad they pollute. Oh, and that price might only last for 15 minutes. If you’re generating electricity “behind the meter” (from solar panels) they usually agree to some nominal price but chances are if it’s that hot your system is using your panels to augment your grid usage.
  - tialaramex 7y ago
    This makes more sense, thanks. I do have a further question though. You say you'd get this price if you're last but surely it would make more sense to pay all generators the current winning price otherwise there's an incentive to guess and under-supply to get paid more. I know the UK had to iterate a few times to make a system that wouldn't get gamed by suppliers, ensuring their incentives align with the power network stability and performance goals. I've actually been reading recently about the other side of this, the retail side would like to force consumers to accept 15 minute metering. Current legislation forces consumers to be metered in hour increments, with 15 minutes only at their option but that might mean suppliers eat a spike like this one. Most home users are actually paying a fixed rate or simple on peak/ off peak system, with their off peak supply locally switched off by relays during peak times, but the law already provides for hourly rates. The long term idea is to load shed home users. Power spikes? Stop filling up those EVs and heating swimming pools rather than spin up another gas turbine.
    - ryanmarsh 7y ago
      The generators can’t just do whatever they want, otherwise they could easily conspire to set prices. ERCOT, MISO (mid-continent system operator), and CALISO (California) basically run the grid. The generators are all under contract and can be fined for not being able to spin up when asked. This is called an “unplanned outage” and it can really cause problems.

tialaramex 7y ago

You mention that "nobody pays the spot price" but what effect does this price have then if nobody pays it? If I have a way to make, let's say, 30MW for up to 5 hours per day, and inject it into that system, could I get $9000 per MWh for that power during the period mentioned in the article? If I wouldn't get $9000 then what purpose does this price signal have? "Oh great, the notional price I won't actually get paid went up. I will be sure to increase the notional amount of electricity I don't actually make"

jabl 7y ago
Everybody (sane) is hedged. So while nobody per se pays the spot price, the spot price affects the parameters of the hedging contracts, PPA's, and whatnot.
ryanmarsh 7y ago
A few REP’s pay that price each year.... and they go out of business. The price is a reflection of the scarcity of generation and transmission capacity when its 101°F at 90% humidity and the entire state has the A/C on full blast. If you were plugged in with ERCOT as a generator (guessing you don’t have the millions to build one), and you were the last to get told to start up, and you were close to the source of the need, you most certainly could earn that much. That’s what “peaker plants” are. You’ve probably heard about how bad they pollute. Oh, and that price might only last for 15 minutes. If you’re generating electricity “behind the meter” (from solar panels) they usually agree to some nominal price but chances are if it’s that hot your system is using your panels to augment your grid usage.
- tialaramex 7y ago
  This makes more sense, thanks. I do have a further question though. You say you'd get this price if you're last but surely it would make more sense to pay all generators the current winning price otherwise there's an incentive to guess and under-supply to get paid more. I know the UK had to iterate a few times to make a system that wouldn't get gamed by suppliers, ensuring their incentives align with the power network stability and performance goals. I've actually been reading recently about the other side of this, the retail side would like to force consumers to accept 15 minute metering. Current legislation forces consumers to be metered in hour increments, with 15 minutes only at their option but that might mean suppliers eat a spike like this one. Most home users are actually paying a fixed rate or simple on peak/ off peak system, with their off peak supply locally switched off by relays during peak times, but the law already provides for hourly rates. The long term idea is to load shed home users. Power spikes? Stop filling up those EVs and heating swimming pools rather than spin up another gas turbine.
  - ryanmarsh 7y ago
    The generators can’t just do whatever they want, otherwise they could easily conspire to set prices. ERCOT, MISO (mid-continent system operator), and CALISO (California) basically run the grid. The generators are all under contract and can be fined for not being able to spin up when asked. This is called an “unplanned outage” and it can really cause problems.