5 ms·

Unfortunately, storage of electricity is quite difficult; supply and demand therefore need to be balanced at all times. An oversupply (ie, overvoltage or excess

Unfortunately, storage of electricity is quite difficult; supply and demand therefore need to be balanced at all times. An oversupply (ie, overvoltage or excessive frequency) will damage equipment, so prices go negative to encourage those plants which can go offline quickly to do so; generation stations which take longer to shut down or start up, on the other hand, tend to stay running.

Dylan16807 6y ago
In the immediate term, sure. In the medium to long term you probably want some central management that can ensure extra capacity exists. When you depend on the spot market for everything, this happens, and you encourage an attitude of "yeah you're begging for power but I very likely won't get paid for it so why should I care?".
- WalterBright 6y ago
  Gasoline pump prices always retails for the spot price, and no shortages have occurred since 1980 when Reagan repealed all oil & gas price/allocation controls. This is despite plenty of oil shocks, wars, refinery explosions, the current freeze preventing gas transport, etc. Nobody has reported gasoline shortages in Texas.
  - Dylan16807 6y ago
    It's really easy to store gasoline. This makes the spot prices far more stable, and in case of shortage you don't instantly cripple households. And households that run out can easily get an alternative. It's a completely different product, so the ideal market is different.
    - WalterBright 6y ago
      In the 1970s, the feds decided they could set prices and allocate gas far more efficiently than the market. The result was many years of gas shortages and long lines. Reagan's first act in 1980 was an Executive Order to repeal all of that. The gas lines disappeared literally overnight, and have not returned in 40 years. I don't buy that anything is fundamentally different about electricity. > case of shortage you don't instantly cripple households The point of market pricing is you don't have shortages. The price rises until demand drops to match the supply. Rolling blackouts and peaker plants would be unnecessary with market pricing. Demand for electricity is very elastic. I'd change my behavior if rates doubled. Wouldn't you, too? I bet you could easily cut your consumption by 50% without any particular hardship. Put on a sweater, read a book instead of watch TV, lights on only when you need them, turn off exterior lights, shorten the time your computer goes into power saving mode, etc. A lot better than rolling blackouts.
      - Dylan16807 6y ago
        > I'd change my behavior if rates doubled. Wouldn't you, too? But most customers want fixed-rate electricity. So in a free market, that's what they buy. The spot market largely only exists for suppliers, and if you run out of suppliers the problems with electricity are vastly harsher than you could ever get with gas. The combination of market + contracts + consumer preference ends up causing shortages. I'm not suggesting setting prices or trying to allocate supply. Still have the spot market. But I think it would help if there was also some money that went toward keeping a percentage of extra capacity around even if it's going completely unused and would never make a profit from the spot market alone. - Alternatively you could use regulation to force variable pricing onto consumers. That would probably work too.
        WalterBright 6y ago
        > But most customers want fixed-rate electricity. And what they got was no electricity when they needed it most. > So in a free market, that's what they buy. Some did buy the variable plan. They had electricity (although at a high price).
        Dylan16807 6y ago
        > And what they got was no electricity when they needed it most. Yes. And what I'm saying is that it's a natural outcome of having a market. As far as I can tell you're arguing for "market pricing" but arguing against government interference in pricing, but I don't think you can have both of those at the same time. If the government doesn't intervene, most people will buy fixed-price electricity contracts instead of market-priced contracts. If you want the average person to avoid blackouts in a situation like this ('like this' meaning no huge grid overhauls), then you need to ban fixed-price electricity contracts. > Some did buy the variable plan. They had electricity (although at a high price). Are you sure? As far as I'm aware the outages were a function of location, not what type of plan you bought.
        WalterBright 6y ago
  - taeric 6y ago
    Aren't there strong controls on how much gas can fluctuate?
    - WalterBright 6y ago
      No.
      - taeric 6y ago
        Huh? I know the few times that gas has had a run on it in my lifetime, people immediately bring up gouging laws. Quickly reading, sounds like this is only a few states and depends on a few other factors?
        WalterBright 6y ago
        I thought the gouging laws only applied when disasters are declared. The gouging laws are stupid, anyway, as they simply ensure there's no gas to buy. Everybody is worse off.
        taeric 6y ago
        That is inline with what I was reading. I'm assuming the outage last week was an emergency, so assumed something like this would apply, but I see no evidence that is the case.
        tzs 6y ago
        In most disasters for which gouging laws would apply, won't the gas stations still run out even without such laws? The gas stations usually run out because the disaster stops transportation into the disaster area so the gas stations can't get resupplied.
        taeric 6y ago
        This is an argument that feels right. However, you are just shifting first in, for biggest wallet. In large, I confess I am ok with that shift. But it really doesn't help more people. Or more at risk people.
WalterBright 6y ago
With fixed electric rates, balancing supply and demand is always placed on the supply. With variable rates, demand can adjust as well.
sschueller 6y ago
It's not if you use hydro power. They can have their supply lakes filled with pumps when there is over generation. Additionaly a hydro plant can go from zero to max power production with in seconds.
thread_id 6y ago
Perfect explanation. This is an example of market contango where the spot price is actually below the futures price completely due to the weather event which has triggered a collapse in demand on the grid. And because of the nature of power generation, for many suppliers, it is actually less costly to remain running and sell at a loss than to shut down.

Dylan16807 6y ago

In the immediate term, sure. In the medium to long term you probably want some central management that can ensure extra capacity exists. When you depend on the spot market for everything, this happens, and you encourage an attitude of "yeah you're begging for power but I very likely won't get paid for it so why should I care?".

WalterBright 6y ago
Gasoline pump prices always retails for the spot price, and no shortages have occurred since 1980 when Reagan repealed all oil & gas price/allocation controls. This is despite plenty of oil shocks, wars, refinery explosions, the current freeze preventing gas transport, etc. Nobody has reported gasoline shortages in Texas.
- Dylan16807 6y ago
  It's really easy to store gasoline. This makes the spot prices far more stable, and in case of shortage you don't instantly cripple households. And households that run out can easily get an alternative. It's a completely different product, so the ideal market is different.
  - WalterBright 6y ago
    In the 1970s, the feds decided they could set prices and allocate gas far more efficiently than the market. The result was many years of gas shortages and long lines. Reagan's first act in 1980 was an Executive Order to repeal all of that. The gas lines disappeared literally overnight, and have not returned in 40 years. I don't buy that anything is fundamentally different about electricity. > case of shortage you don't instantly cripple households The point of market pricing is you don't have shortages. The price rises until demand drops to match the supply. Rolling blackouts and peaker plants would be unnecessary with market pricing. Demand for electricity is very elastic. I'd change my behavior if rates doubled. Wouldn't you, too? I bet you could easily cut your consumption by 50% without any particular hardship. Put on a sweater, read a book instead of watch TV, lights on only when you need them, turn off exterior lights, shorten the time your computer goes into power saving mode, etc. A lot better than rolling blackouts.
    - Dylan16807 6y ago
      > I'd change my behavior if rates doubled. Wouldn't you, too? But most customers want fixed-rate electricity. So in a free market, that's what they buy. The spot market largely only exists for suppliers, and if you run out of suppliers the problems with electricity are vastly harsher than you could ever get with gas. The combination of market + contracts + consumer preference ends up causing shortages. I'm not suggesting setting prices or trying to allocate supply. Still have the spot market. But I think it would help if there was also some money that went toward keeping a percentage of extra capacity around even if it's going completely unused and would never make a profit from the spot market alone. - Alternatively you could use regulation to force variable pricing onto consumers. That would probably work too.
      - WalterBright 6y ago
        > But most customers want fixed-rate electricity. And what they got was no electricity when they needed it most. > So in a free market, that's what they buy. Some did buy the variable plan. They had electricity (although at a high price).
        Dylan16807 6y ago
        > And what they got was no electricity when they needed it most. Yes. And what I'm saying is that it's a natural outcome of having a market. As far as I can tell you're arguing for "market pricing" but arguing against government interference in pricing, but I don't think you can have both of those at the same time. If the government doesn't intervene, most people will buy fixed-price electricity contracts instead of market-priced contracts. If you want the average person to avoid blackouts in a situation like this ('like this' meaning no huge grid overhauls), then you need to ban fixed-price electricity contracts. > Some did buy the variable plan. They had electricity (although at a high price). Are you sure? As far as I'm aware the outages were a function of location, not what type of plan you bought.
        WalterBright 6y ago
- taeric 6y ago
  Aren't there strong controls on how much gas can fluctuate?
  - WalterBright 6y ago
    No.
    - taeric 6y ago
      Huh? I know the few times that gas has had a run on it in my lifetime, people immediately bring up gouging laws. Quickly reading, sounds like this is only a few states and depends on a few other factors?
      - WalterBright 6y ago
        I thought the gouging laws only applied when disasters are declared. The gouging laws are stupid, anyway, as they simply ensure there's no gas to buy. Everybody is worse off.
        taeric 6y ago
        That is inline with what I was reading. I'm assuming the outage last week was an emergency, so assumed something like this would apply, but I see no evidence that is the case.
        tzs 6y ago
        In most disasters for which gouging laws would apply, won't the gas stations still run out even without such laws? The gas stations usually run out because the disaster stops transportation into the disaster area so the gas stations can't get resupplied.
        taeric 6y ago
        This is an argument that feels right. However, you are just shifting first in, for biggest wallet. In large, I confess I am ok with that shift. But it really doesn't help more people. Or more at risk people.

WalterBright 6y ago

With fixed electric rates, balancing supply and demand is always placed on the supply. With variable rates, demand can adjust as well.

sschueller 6y ago

It's not if you use hydro power. They can have their supply lakes filled with pumps when there is over generation. Additionaly a hydro plant can go from zero to max power production with in seconds.

thread_id 6y ago

Perfect explanation. This is an example of market contango where the spot price is actually below the futures price completely due to the weather event which has triggered a collapse in demand on the grid. And because of the nature of power generation, for many suppliers, it is actually less costly to remain running and sell at a loss than to shut down.