10 ms·

It’s cheaper because we pass the risk on to you

95 points by Borlands 6y ago

newacct583 6y ago
This is the reason we have consumer regulation. Markets are volatile. Markets are complicated. And while it's true that expert traders can find efficiencies in buying commodities at unregulated market prices, it is in no way acceptable to demand that all of us be experts in the market commodities we need to be a part of society. I can all but guarantee you that no one who signed up for Griddy ever thought they'd get a bill like this. I can also guarantee you that there were Texas energy market experts out there who knew something like this was an eventuality. And that is why "Griddy" should never have existed.
- Gaelan 6y ago
  Griddy claims[0]—a claim I don't have the knowledge to verify—that this price spike was a political intervention, not a natural consequence of the market, and thus something they couldn't have predicted. [0]: https://www.griddy.com/post/griddy-update-why-energy-prices-were-sky-high-this-week https://www.griddy.com/post/griddy-update-why-energy-prices-...
  - cozzyd 6y ago
    On the contrary, the price likely would have gone higher without the regulatory cap...
    - throwawaysea 6y ago
      The article shows the real time supply and demand price at the time being 300x lower. It wasn’t a price cap but more like a mandatory price increase. At least that’s how the linked post from Griddy describes it.
      - cozzyd 6y ago
        When demand exceeded supply and load had to be shed, the fair market price likely would have been much higher. Griddy is advocating for having their cake and eating it too here, I think.
  - jrumbut 6y ago
    The political intervention was done using the mechanism described in the rules (according to my reading of your link). They relied on conditions staying static when the rules say things can change a lot in an emergency.
  - khuey 6y ago
    Griddy is being a bit disingenuous here, IMO. ERCOT operates a power-only market, unlike most grid operators. No producers get paid "for capacity" (for agreeing to be ready to provide power, even if they're not currently doing so). To provide a motivation for producers to have excess capacity, ERCOT allows the wholesale price of electricity to rise as high as $9000/MWh in shortage conditions. During the past week when massive amounts of supply went offline ERCOT forced the downstream utilities to disconnect customers (shed load) to avoid bringing down the entire grid. This is what the "EEA 3" in Griddy's graphic means. After vast swathes of Texas were disconnected from the grid and prevented from buying power at any price, the market clearing price for those remaining on the grid was around $1200/MWh. The Texas PUC ordered ERCOT to raise the price to the cap of $9000/MWh to accurately reflect that demand was vastly exceeding supply at that moment. So was it an intervention? Yes. But the intervention was there to make the market function more like it was intended to. Shedding load from the grid was also (an earlier) intervention in the market. It's not really possible to operate a completely "free market" in electricity because of physical and moral constraints (are you really going to turn off electricity to the water treatment plant before some guy's mansion?) as we're seeing.
    - X-Istence 6y ago
      Right... the wholesale cost was artificially being held low during that time because ERCOT was load shedding by disconnecting consumers. The algorithm just sees load < available power and sets the price. This means that as the load continued to shed, wholesale price would have continued to plummet, which would have caused more generation to go offline (as there's no demand for it, and price per kWh is dropping), which is the exact opposite of what was required to stabilize the grid. Generation needed to be brought back online, and wholesale customers still connected to the grid (think large industry) should have pulled their load off the grid to restore capacity for the retail consumer.
- throwawaysea 6y ago
  It doesn’t seem like anything unlawful, fraudulent, or even just shady happened here. Where is the threshold where you see the need for regulation superseding the freedom for people to transact with such risk exposure? Some people may want to pool into something amortizing risk as described but others may want to just reduce their usage. Shouldn’t they be permitted to do so? It’s like how some people may want to hold their savings as cash, some may want to invest in individual stocks, and some may seek mutual funds. The article’s final conclusion, that this episode highlights the necessity of collectivism over individualism, seems like a major logical leap.
  - compiler-guy 6y ago
    Nothing unlawful, fraudulent, nor shady happened here. But something very risky happened, and the people on the downside of that risk are not in good positions to weather the downside. Whether that is deserving of regulation is a separate issue, but people set themselves up for a disaster on the basis that the downside would not hit them. Pow! Now they are in a world of hurt.
- zz_throwaway_zz 6y ago
  Thankfully we have the uncontroversial non-partisan non-lobbied monopolistic government-backed actors (aka regulators) to save us feeble humans from making our own purchasing decisions in a free market
- iujjkfjdkkdkf 6y ago
  Mostly just thinking out loud You may be right- it's very hard to imagine that normal people really wanted to be exposed to that kind of downside. But also it reminds me of the kind of articles you see from time to time where someone bought a cut-rate airfare, and then got bumped or had some other inconvenient change and was upset that they had no recourse. But of course the whole reason that fare existed was because the buyer was agreeing they could be bumped. So if the options are fixed rate power that is cut when the utility doesnt want to pay the spot price, or wholesale power that stays on but exposes the buyer to the spot price and is usually cheaper than the fixed rate, I start to imagine that there is a market for that. And that like the airfares, people are happy to take the upside but cry not fair when stuck with the downside.
  - gruez 6y ago
    It's basically the problem of tail risk aka "picking up pennies in front of a steam roller". I'm not against it per se, but it does make sense that consumers be informed of it when making a decision, be it writing options or buying electricity at spot rates.
  - newacct583 6y ago
    It depends on the product. It's viewed as perfectly fine to buy and sell futures contracts on global commodities without protection, because the people doing that know what they're doing. It's likewise OK to sell win chances on lottery or slot machine payouts, because the customer is presumed to understand the risks well. But not everything is like that. In particular household utilities aren't elastic things: people need them in a way they don't need to gamble. So the government needs to be regulating this on our behalf, because it's not reasonable to assume everyone knows the weatherproofing state of the Texas power grid. That doesn't mean that no consumer ability to exploit spot power should exist. I mean, there are similar products envisioned like "charge overnight" for EVs that seem safe. But the idea that somehow consumers were going to be so sophisticated as to manage their risk to tolerate a $10k electric bill is just bananas.
    - xiphias2 6y ago
      Another option would have been to require to have a sensible cost cutoff point (smart grid). It would have been more expensive to implement, but a great compromise.
stefan_ 6y ago
Or the lecture is that we should go harder on individuality. Ironically this same blog has a post titled "Review: Moixa Solar Battery". If you have a 100kWh battery at home to tide you over the 3 days it's cold (and electricity costs $9/kWh) but can otherwise directly access the wholesale pricing, what is not to like? I'm not sure if anyone has done the math on what kinda timescale you are looking at for return on investment with a 100kWh battery, but given that most electricity grids in the world have e.g. different day and night rates, there is an obviously untapped market for arbitrage.
- gruez 6y ago
  >there is an obviously untapped market for arbitrage. But if there was an arbitrage opportunity, wouldn't a company be already on top of it[1]? I'd imagine that a company would have greater economies of scale to operate such a system compared to a home user. My guess is that there aren't many people who have solar panels/wind mills, 100kWh batteries, and aren't connected to the grid, because it's much more cost-effective to use the grid as your battery (that is, sell into it when you're generating power, and buying from it when you're not). [1] insert joke about a pair of economists finding a $20 bill on the sidewalk
  - shiftpgdn 6y ago
    My cousins husband works for a company in Texas that provides massive generators to commercial energy users at cost with the catch they're allowed to run the generators to feed the grid when the cost of energy is higher than the cost to run the generators.
- jodrellblank 6y ago
  A 100kWh battery would run a 1kW bar heater (and nothing else) for 4 days. That's probably enough to heat one room and keep you alive, but it won't be giving you the full electric shower, cooking food, warm house and pipes not freezing experience. Even moreso if you want to keep some reserves in case it needs to last more days. > "I'm not sure if anyone has done the math on what kinda timescale you are looking at for return on investment with a 100kWh battery" A long one. 100kWh will cost you maybe $70,000 (e.g. 10x of these https://www.amazon.com/48-VDC-Kwh-Battery-Pack/dp/B079348MM1 https://www.amazon.com/48-VDC-Kwh-Battery-Pack/dp/B079348MM1 ) (If it's not LiIon, but is lead-acid to be cheaper, you won't want to be using much more than 50% of it before it causes problems). At $1/kWh from the mains, about 8 years of mains electricity to buy it. At $0.25/kWh, 32 years.
ZephyrBlu 6y ago
I just found Griddy's post on this: https://www.griddy.com/post/griddy-update-why-energy-prices-were-sky-high-this-week https://www.griddy.com/post/griddy-update-why-energy-prices-... TL;DR they say the Public Utility Commission of Texas has control of prices and is forcing them to be extremely high even though there is no reason for them to be based on supply and demand.
- gruez 6y ago
  >even though there is no reason for them to be based on supply and demand. clearly you missed the story from yesterday: Clearing price for supplying power to Texas grid –$31.65 (ercot.com) https://news.ycombinator.com/item?id=26207827 https://news.ycombinator.com/item?id=26207827
- X-Istence 6y ago
  They also link to the order which explains why they made the decision: http://www.puc.texas.gov/51617WinterERCOTOrder.pdf http://www.puc.texas.gov/51617WinterERCOTOrder.pdf Previously consumers were getting cut off because large industry was still getting low wholesale power and generators were not incentivized to spin up more capacity.
- brendoelfrendo 6y ago
  That's probably referencing this filing: http://www.puc.texas.gov/51617WinterERCOTOrder.pdf http://www.puc.texas.gov/51617WinterERCOTOrder.pdf The PUCT makes a salient point: why was energy trading at less than the maximum if we were shedding load? If demand is so high that the generators can't keep up, then pricing would be expected to follow. PUCT directed ERCOT to ensure that their pricing is commensurate with the scarcity on the market.
ghaff 6y ago
Cue up any discussion about SEC rules etc. It's fundamentally a discussion about whether the "little people" should be allowed access to somewhat complicated instruments than can give them access to (mostly fairly limited) incremental financial gains that require some sophistication to understand and hedge properly. But which, if things go south, can result in huge losses.
bombcar 6y ago
Things like this (basically a form of ‘self insurance’) should require you to post a largish bond to participate. As is you’re effectively doing commodity trading with fixed demand and no safety net.
- gruez 6y ago
  >should require you to post a largish bond to participate. Or just cut your power off after you've racked up a high enough bill? This seems like it's easy to do given that there are remote controlled switches for this exact reason (for load shedding, I believe).
  - HarryHirsch 6y ago
    Now you have a choice between paying extortionate amounts of money for electric and ruining your largest asset, your house, and potentially ending up in hospital with hypothermia.
    - Wowfunhappy 6y ago
      But remember, there literally wasn't enough power to heat everyone's homes. In a simplified universe where everything is as described in an entry-level economics textbook, this variable pricing system saved everyone. People with health conditions or particularly valuable homes were willing to pay exorbitant electricity rates, everyone else turned off their power, and they all lived happily ever after. Real life, of course, is more complicated.
      - imtringued 6y ago
        Real life is more complicated, but people misunderstand where the complexity is hidden. The textbooks aren't wrong. The basic mechanics are sound. The worst part by far is that we can't expect everyone to understand how markets work. It's not just a matter of applying markets everywhere, it's a matter of understanding when markets are useful, when they have to be supported by fallbacks and when it makes sense to have no market at all. For example. There is a pretty basic assumption without which markets cannot function. That is the assumption that people actually know and compare prices instead of just buying things where they don't even know how much it costs. People don't spend their lives staring at wholesale electricity prices all day. What's needed are electronic devices that do this busywork for us. If each outlet had its own price sensitive breaker we could just set up some price caps on each outlet and disable nonessential devices or turn down the thermostat.
fastball 6y ago
I'm in Texas, and lost power for > 72hrs. I'm not on a wholesale rate plan, but if I was, you can bet your sweet ass that I would be A. monitoring the wholesale price B. switching off my main breaker the moment the price went above $X. As such, don't really agree with the conclusion of the article. We mandate having car insurance not because we care if you can't afford to fix your car when you wreck it, but rather because if you crash into someone else we don't want you to dodge paying for what you've done to them. Electricity is entirely a you thing. Your neighbor/society doesn't get hurt if you use Griddy with uncapped rates, only you do (and as pointed out above, you can avoid this if you're smart). Yes people will get burned, but I don't want to live in a society that tries to prevent people from ever making personal mistakes – mostly because such attempts usually don't succeed, while also curtailing my freedom in the process. And just to reiterate, this doesn't apply if there are negative externalities that affect others.
- war1025 6y ago
  > if I was, you can bet your sweet ass that I would be A. monitoring the wholesale price B. switching off my main breaker the moment the price went above $X. Unfortunately, we can't really count on people being at all competent like that. If I was in Texas this past week, you can bet that I would have monitored my lack of heat and shut off my water and drained the pipes in my house. Instead, there is an astronomical amount of water damage from burst pipes now. People who haven't considered or dealt with the worst case scenario will always be caught off guard. That's just the nature of it.
  - shiftpgdn 6y ago
    I am/was a griddy customer. What all of these news stories do not mention is Griddy called literally every single customer and told them to close their accounts because of the upcoming energy shortage.
    - war1025 6y ago
      That seems quite upstanding of them and changes the dynamics of the situation quite a bit in my opinion.
HarryHirsch 6y ago
Well, in the field of business we have limited liability, which limits the individual liability of the owners and also puts a damper on whatever risk a possible creditor might take with a debtor. But Griddy manages to drop unlimited liability onto individuals, and this isn't how it's supposed to work.
fallingfrog 6y ago
This is on some deep level what society is for and how humans survived in a hostile wilderness for so many generations: by pooling resources to reduce risk. If I’m alone in the forest, and I break my foot, I can no longer hunt, and I may die. But if I’m a member of a tribe, the others will bring me food until I can walk again. It’s the foundation of human behavior. We are social animals not because we’re just nice, but out of necessity. It’s about survival, in the end. Pooling resources for power costs, or for health care, or any other purpose, serves the same purpose: survival via reduction of risk.
ashtonkem 6y ago
This crisis in Texas is also a good argument for why price gouging during a shortage doesn’t work the way anti-regulatory advocates said it would. The theory is as such: raising prices during a crisis does two things. First it encourages more production, since anyone producing (or more likely, moving) shortage goods into the affected area will be compensated. Secondly it discourages non essential consumption, as everyone cuts back to the bare minimum. This is the basic theory of prices driving resource allocation (one of the cornerstones of capitalism) being applied to a crisis and the resulting resource shortages. The issue here in Texas is that this didn’t happen. In theory producers should’ve run extra capacity to take advantage of the crisis, which should end it. Instead they ran the bare minimum, didn’t winterize, and pocketed the profits. It was also impossible to move extra energy in, both due to diminished excess in nearby states, and a lack of robust cross-grid connections. Secondly a lot of this demand isn’t elastic. If you’re counting on an electric heat pump to warm your home, then you can’t cut consumption during a crisis; you’ll freeze to death. This means that the rising prices don’t cause people to curtail consumption, because nobody will willingly freeze themselves and their water pipes given the choice.
- ffggvv 6y ago
  no incentive is really going to work in a 2 day period. i don’t think anyone would say some competitor would sprout up that fast. but idk if that’s generalizable to all crises of all durations for all types of good
  - ashtonkem 6y ago
    According to the designer of the Texas system, the incentive was to have extra capacity in order to capitalize on any transient spike in wholesale electricity prices. That obviously didn’t happen. Nor did power plant operators take less expensive steps in order to ensure that their existing equipment was operating during such circumstances in order to capitalize on the price rises. Instead they didn’t spend the money to winterize or have extra production, and Texans suffered for it. And before the whole “who could have predicted this once in a century storm”, this exact issue came up in 2011, and the Federal Energy Regulatory Committee produced a huge report warning about all of the things that ended up knocking the grid offline this year.
sn_master 6y ago
Griddy is saying the price hike was artificial. I am not sure if it makes sense or if it's misleading. https://www.griddy.com/post/griddy-update-why-energy-prices-were-sky-high-this-week https://www.griddy.com/post/griddy-update-why-energy-prices-...
- X-Istence 6y ago
  It was artificial in that the Public Utility Commission forced the price up to force more non-retail load to be shed by wholesale customers (think fabrication and industry). http://www.puc.texas.gov/51617WinterERCOTOrder.pdf http://www.puc.texas.gov/51617WinterERCOTOrder.pdf Retail customers weren't expected to be directly affected by wholesale pricing of energy, but when a provider passes through the wholesale price directly that goes out the window.
  - Spivak 6y ago
    Yeah but this was a hack and the side-effects should still be addressed. If the intent was to force the price to a point where everyone’s system trips and automatically stops buying but just relied on everyone having that set up then that’s on the commission to make it right when that assumption turned out to be false for some people. They should make everyone whole by charging the real market prices for that stretch of time.
- deleted 6y ago
  [deleted]
ffggvv 6y ago
seems like the government is going to bail out these people anyway so this entire discussion is a moot point
jesstaa 6y ago
Amber Electric in Australia has this same model of passing the wholesale prices on to customers. But they have a cap. "We pass through the 30 minute wholesale prices directly, and this is typically significantly cheaper than the Government’s Default Market Offer, but to give you peace of mind we guarantee you will never pay more than the Default Market Offer (or VMO in VIC) over a year or we’ll refund the difference." https://help.amberelectric.com.au/hc/en-us/articles/360037454851 https://help.amberelectric.com.au/hc/en-us/articles/36003745... I think this is only possible because there is lots of regulation on electricity providers in Australia.
lmilcin 6y ago
I work for a bank in risk. The premise of the article is correct. Risk is cost. A company that can manage their risks better face less costs and ones that can eliminate the risk altogether (for example by passing it to their customers) fares even better. Normally, companies like Griddy buy financial products (which I help build) that let them insulate themselves from some portion of that risk. These products are not sold for free, obviously. When you buy an insurance it is understood that the insurance company is going to make some money on it. You buy insurance because you want to insulate yourself from an event that could potentially cripple your finance, living standards or future prospects for a long time. By passing the risk to their clients, Griddy did not have to pay for any kind of insurance or hedge against market volatility in any way. Unfortunately, people who bought this were not savvy enough to understand they need to insure themselves in some way and that this is not really worth it. It does not help that it is apparently not that easy to change where you buy energy when nobody wants new clients and would gladly get rid of the ones they already have. --- I am not from US and I also don't know energy markets, but my understanding is that these kinds of markets are going to be volatile because of basic fact that energy demand is quite inelastic. Normally, when the demand is elastic and the price goes up, some people would decide to stop buying thus keeping some kind equilibrium between supply and demand at some sensible price. Unfortunately, most people will not decide to stop heating their houses when demand is not able to meet supply and this means energy market can behave in an extremely volatile way. What I wonder is where are businesses, industry, factories that I think should normally consume most of the energy and should be first to switch off when supply falls. People wanted energy to be deregulated? I personally think basic necessities that people absolutely need to have should be regulated to some degree. You don't want to wake up and find a medicine you need to sustain your life just went 10000 percent up because of some random market event or that your hospital suddenly can't buy energy because it is too expensive. Some systems (like home budgets or small businesses) are built on a very tight margins and are really sensitive to that kind of volatility. Maybe large companies can absorb large swings in prices but normal people should not be living in fear that their livelihood is going to be taken from them for some random market swing or AI decision.

95 points by Borlands 6y ago

This is the reason we have consumer regulation. Markets are volatile. Markets are complicated. And while it's true that expert traders can find efficiencies in buying commodities at unregulated market prices, it is in no way acceptable to demand that all of us be experts in the market commodities we need to be a part of society. I can all but guarantee you that no one who signed up for Griddy ever thought they'd get a bill like this. I can also guarantee you that there were Texas energy market experts out there who knew something like this was an eventuality. And that is why "Griddy" should never have existed.

Gaelan 6y ago
Griddy claims[0]—a claim I don't have the knowledge to verify—that this price spike was a political intervention, not a natural consequence of the market, and thus something they couldn't have predicted. [0]: https://www.griddy.com/post/griddy-update-why-energy-prices-were-sky-high-this-week https://www.griddy.com/post/griddy-update-why-energy-prices-...
- cozzyd 6y ago
  On the contrary, the price likely would have gone higher without the regulatory cap...
  - throwawaysea 6y ago
    The article shows the real time supply and demand price at the time being 300x lower. It wasn’t a price cap but more like a mandatory price increase. At least that’s how the linked post from Griddy describes it.
    - cozzyd 6y ago
      When demand exceeded supply and load had to be shed, the fair market price likely would have been much higher. Griddy is advocating for having their cake and eating it too here, I think.
- jrumbut 6y ago
  The political intervention was done using the mechanism described in the rules (according to my reading of your link). They relied on conditions staying static when the rules say things can change a lot in an emergency.
- khuey 6y ago
  Griddy is being a bit disingenuous here, IMO. ERCOT operates a power-only market, unlike most grid operators. No producers get paid "for capacity" (for agreeing to be ready to provide power, even if they're not currently doing so). To provide a motivation for producers to have excess capacity, ERCOT allows the wholesale price of electricity to rise as high as $9000/MWh in shortage conditions. During the past week when massive amounts of supply went offline ERCOT forced the downstream utilities to disconnect customers (shed load) to avoid bringing down the entire grid. This is what the "EEA 3" in Griddy's graphic means. After vast swathes of Texas were disconnected from the grid and prevented from buying power at any price, the market clearing price for those remaining on the grid was around $1200/MWh. The Texas PUC ordered ERCOT to raise the price to the cap of $9000/MWh to accurately reflect that demand was vastly exceeding supply at that moment. So was it an intervention? Yes. But the intervention was there to make the market function more like it was intended to. Shedding load from the grid was also (an earlier) intervention in the market. It's not really possible to operate a completely "free market" in electricity because of physical and moral constraints (are you really going to turn off electricity to the water treatment plant before some guy's mansion?) as we're seeing.
  - X-Istence 6y ago
    Right... the wholesale cost was artificially being held low during that time because ERCOT was load shedding by disconnecting consumers. The algorithm just sees load < available power and sets the price. This means that as the load continued to shed, wholesale price would have continued to plummet, which would have caused more generation to go offline (as there's no demand for it, and price per kWh is dropping), which is the exact opposite of what was required to stabilize the grid. Generation needed to be brought back online, and wholesale customers still connected to the grid (think large industry) should have pulled their load off the grid to restore capacity for the retail consumer.
throwawaysea 6y ago
It doesn’t seem like anything unlawful, fraudulent, or even just shady happened here. Where is the threshold where you see the need for regulation superseding the freedom for people to transact with such risk exposure? Some people may want to pool into something amortizing risk as described but others may want to just reduce their usage. Shouldn’t they be permitted to do so? It’s like how some people may want to hold their savings as cash, some may want to invest in individual stocks, and some may seek mutual funds. The article’s final conclusion, that this episode highlights the necessity of collectivism over individualism, seems like a major logical leap.
- compiler-guy 6y ago
  Nothing unlawful, fraudulent, nor shady happened here. But something very risky happened, and the people on the downside of that risk are not in good positions to weather the downside. Whether that is deserving of regulation is a separate issue, but people set themselves up for a disaster on the basis that the downside would not hit them. Pow! Now they are in a world of hurt.
zz_throwaway_zz 6y ago
Thankfully we have the uncontroversial non-partisan non-lobbied monopolistic government-backed actors (aka regulators) to save us feeble humans from making our own purchasing decisions in a free market
iujjkfjdkkdkf 6y ago
Mostly just thinking out loud You may be right- it's very hard to imagine that normal people really wanted to be exposed to that kind of downside. But also it reminds me of the kind of articles you see from time to time where someone bought a cut-rate airfare, and then got bumped or had some other inconvenient change and was upset that they had no recourse. But of course the whole reason that fare existed was because the buyer was agreeing they could be bumped. So if the options are fixed rate power that is cut when the utility doesnt want to pay the spot price, or wholesale power that stays on but exposes the buyer to the spot price and is usually cheaper than the fixed rate, I start to imagine that there is a market for that. And that like the airfares, people are happy to take the upside but cry not fair when stuck with the downside.
- gruez 6y ago
  It's basically the problem of tail risk aka "picking up pennies in front of a steam roller". I'm not against it per se, but it does make sense that consumers be informed of it when making a decision, be it writing options or buying electricity at spot rates.
- newacct583 6y ago
  It depends on the product. It's viewed as perfectly fine to buy and sell futures contracts on global commodities without protection, because the people doing that know what they're doing. It's likewise OK to sell win chances on lottery or slot machine payouts, because the customer is presumed to understand the risks well. But not everything is like that. In particular household utilities aren't elastic things: people need them in a way they don't need to gamble. So the government needs to be regulating this on our behalf, because it's not reasonable to assume everyone knows the weatherproofing state of the Texas power grid. That doesn't mean that no consumer ability to exploit spot power should exist. I mean, there are similar products envisioned like "charge overnight" for EVs that seem safe. But the idea that somehow consumers were going to be so sophisticated as to manage their risk to tolerate a $10k electric bill is just bananas.
  - xiphias2 6y ago
    Another option would have been to require to have a sensible cost cutoff point (smart grid). It would have been more expensive to implement, but a great compromise.

stefan_ 6y ago

Or the lecture is that we should go harder on individuality. Ironically this same blog has a post titled "Review: Moixa Solar Battery". If you have a 100kWh battery at home to tide you over the 3 days it's cold (and electricity costs $9/kWh) but can otherwise directly access the wholesale pricing, what is not to like? I'm not sure if anyone has done the math on what kinda timescale you are looking at for return on investment with a 100kWh battery, but given that most electricity grids in the world have e.g. different day and night rates, there is an obviously untapped market for arbitrage.

gruez 6y ago
>there is an obviously untapped market for arbitrage. But if there was an arbitrage opportunity, wouldn't a company be already on top of it[1]? I'd imagine that a company would have greater economies of scale to operate such a system compared to a home user. My guess is that there aren't many people who have solar panels/wind mills, 100kWh batteries, and aren't connected to the grid, because it's much more cost-effective to use the grid as your battery (that is, sell into it when you're generating power, and buying from it when you're not). [1] insert joke about a pair of economists finding a $20 bill on the sidewalk
- shiftpgdn 6y ago
  My cousins husband works for a company in Texas that provides massive generators to commercial energy users at cost with the catch they're allowed to run the generators to feed the grid when the cost of energy is higher than the cost to run the generators.
jodrellblank 6y ago
A 100kWh battery would run a 1kW bar heater (and nothing else) for 4 days. That's probably enough to heat one room and keep you alive, but it won't be giving you the full electric shower, cooking food, warm house and pipes not freezing experience. Even moreso if you want to keep some reserves in case it needs to last more days. > "I'm not sure if anyone has done the math on what kinda timescale you are looking at for return on investment with a 100kWh battery" A long one. 100kWh will cost you maybe $70,000 (e.g. 10x of these https://www.amazon.com/48-VDC-Kwh-Battery-Pack/dp/B079348MM1 https://www.amazon.com/48-VDC-Kwh-Battery-Pack/dp/B079348MM1 ) (If it's not LiIon, but is lead-acid to be cheaper, you won't want to be using much more than 50% of it before it causes problems). At $1/kWh from the mains, about 8 years of mains electricity to buy it. At $0.25/kWh, 32 years.

ZephyrBlu 6y ago

I just found Griddy's post on this: https://www.griddy.com/post/griddy-update-why-energy-prices-were-sky-high-this-week https://www.griddy.com/post/griddy-update-why-energy-prices-... TL;DR they say the Public Utility Commission of Texas has control of prices and is forcing them to be extremely high even though there is no reason for them to be based on supply and demand.

gruez 6y ago
>even though there is no reason for them to be based on supply and demand. clearly you missed the story from yesterday: Clearing price for supplying power to Texas grid –$31.65 (ercot.com) https://news.ycombinator.com/item?id=26207827 https://news.ycombinator.com/item?id=26207827
X-Istence 6y ago
They also link to the order which explains why they made the decision: http://www.puc.texas.gov/51617WinterERCOTOrder.pdf http://www.puc.texas.gov/51617WinterERCOTOrder.pdf Previously consumers were getting cut off because large industry was still getting low wholesale power and generators were not incentivized to spin up more capacity.
brendoelfrendo 6y ago
That's probably referencing this filing: http://www.puc.texas.gov/51617WinterERCOTOrder.pdf http://www.puc.texas.gov/51617WinterERCOTOrder.pdf The PUCT makes a salient point: why was energy trading at less than the maximum if we were shedding load? If demand is so high that the generators can't keep up, then pricing would be expected to follow. PUCT directed ERCOT to ensure that their pricing is commensurate with the scarcity on the market.

ghaff 6y ago

Cue up any discussion about SEC rules etc. It's fundamentally a discussion about whether the "little people" should be allowed access to somewhat complicated instruments than can give them access to (mostly fairly limited) incremental financial gains that require some sophistication to understand and hedge properly. But which, if things go south, can result in huge losses.

bombcar 6y ago

Things like this (basically a form of ‘self insurance’) should require you to post a largish bond to participate. As is you’re effectively doing commodity trading with fixed demand and no safety net.

gruez 6y ago
>should require you to post a largish bond to participate. Or just cut your power off after you've racked up a high enough bill? This seems like it's easy to do given that there are remote controlled switches for this exact reason (for load shedding, I believe).
- HarryHirsch 6y ago
  Now you have a choice between paying extortionate amounts of money for electric and ruining your largest asset, your house, and potentially ending up in hospital with hypothermia.
  - Wowfunhappy 6y ago
    But remember, there literally wasn't enough power to heat everyone's homes. In a simplified universe where everything is as described in an entry-level economics textbook, this variable pricing system saved everyone. People with health conditions or particularly valuable homes were willing to pay exorbitant electricity rates, everyone else turned off their power, and they all lived happily ever after. Real life, of course, is more complicated.
    - imtringued 6y ago
      Real life is more complicated, but people misunderstand where the complexity is hidden. The textbooks aren't wrong. The basic mechanics are sound. The worst part by far is that we can't expect everyone to understand how markets work. It's not just a matter of applying markets everywhere, it's a matter of understanding when markets are useful, when they have to be supported by fallbacks and when it makes sense to have no market at all. For example. There is a pretty basic assumption without which markets cannot function. That is the assumption that people actually know and compare prices instead of just buying things where they don't even know how much it costs. People don't spend their lives staring at wholesale electricity prices all day. What's needed are electronic devices that do this busywork for us. If each outlet had its own price sensitive breaker we could just set up some price caps on each outlet and disable nonessential devices or turn down the thermostat.

fastball 6y ago

I'm in Texas, and lost power for > 72hrs. I'm not on a wholesale rate plan, but if I was, you can bet your sweet ass that I would be A. monitoring the wholesale price B. switching off my main breaker the moment the price went above $X. As such, don't really agree with the conclusion of the article. We mandate having car insurance not because we care if you can't afford to fix your car when you wreck it, but rather because if you crash into someone else we don't want you to dodge paying for what you've done to them. Electricity is entirely a you thing. Your neighbor/society doesn't get hurt if you use Griddy with uncapped rates, only you do (and as pointed out above, you can avoid this if you're smart). Yes people will get burned, but I don't want to live in a society that tries to prevent people from ever making personal mistakes – mostly because such attempts usually don't succeed, while also curtailing my freedom in the process. And just to reiterate, this doesn't apply if there are negative externalities that affect others.

war1025 6y ago
> if I was, you can bet your sweet ass that I would be A. monitoring the wholesale price B. switching off my main breaker the moment the price went above $X. Unfortunately, we can't really count on people being at all competent like that. If I was in Texas this past week, you can bet that I would have monitored my lack of heat and shut off my water and drained the pipes in my house. Instead, there is an astronomical amount of water damage from burst pipes now. People who haven't considered or dealt with the worst case scenario will always be caught off guard. That's just the nature of it.
- shiftpgdn 6y ago
  I am/was a griddy customer. What all of these news stories do not mention is Griddy called literally every single customer and told them to close their accounts because of the upcoming energy shortage.
  - war1025 6y ago
    That seems quite upstanding of them and changes the dynamics of the situation quite a bit in my opinion.

HarryHirsch 6y ago

Well, in the field of business we have limited liability, which limits the individual liability of the owners and also puts a damper on whatever risk a possible creditor might take with a debtor. But Griddy manages to drop unlimited liability onto individuals, and this isn't how it's supposed to work.

fallingfrog 6y ago

This is on some deep level what society is for and how humans survived in a hostile wilderness for so many generations: by pooling resources to reduce risk. If I’m alone in the forest, and I break my foot, I can no longer hunt, and I may die. But if I’m a member of a tribe, the others will bring me food until I can walk again. It’s the foundation of human behavior. We are social animals not because we’re just nice, but out of necessity. It’s about survival, in the end. Pooling resources for power costs, or for health care, or any other purpose, serves the same purpose: survival via reduction of risk.

ashtonkem 6y ago

This crisis in Texas is also a good argument for why price gouging during a shortage doesn’t work the way anti-regulatory advocates said it would. The theory is as such: raising prices during a crisis does two things. First it encourages more production, since anyone producing (or more likely, moving) shortage goods into the affected area will be compensated. Secondly it discourages non essential consumption, as everyone cuts back to the bare minimum. This is the basic theory of prices driving resource allocation (one of the cornerstones of capitalism) being applied to a crisis and the resulting resource shortages. The issue here in Texas is that this didn’t happen. In theory producers should’ve run extra capacity to take advantage of the crisis, which should end it. Instead they ran the bare minimum, didn’t winterize, and pocketed the profits. It was also impossible to move extra energy in, both due to diminished excess in nearby states, and a lack of robust cross-grid connections. Secondly a lot of this demand isn’t elastic. If you’re counting on an electric heat pump to warm your home, then you can’t cut consumption during a crisis; you’ll freeze to death. This means that the rising prices don’t cause people to curtail consumption, because nobody will willingly freeze themselves and their water pipes given the choice.

ffggvv 6y ago
no incentive is really going to work in a 2 day period. i don’t think anyone would say some competitor would sprout up that fast. but idk if that’s generalizable to all crises of all durations for all types of good
- ashtonkem 6y ago
  According to the designer of the Texas system, the incentive was to have extra capacity in order to capitalize on any transient spike in wholesale electricity prices. That obviously didn’t happen. Nor did power plant operators take less expensive steps in order to ensure that their existing equipment was operating during such circumstances in order to capitalize on the price rises. Instead they didn’t spend the money to winterize or have extra production, and Texans suffered for it. And before the whole “who could have predicted this once in a century storm”, this exact issue came up in 2011, and the Federal Energy Regulatory Committee produced a huge report warning about all of the things that ended up knocking the grid offline this year.

sn_master 6y ago

Griddy is saying the price hike was artificial. I am not sure if it makes sense or if it's misleading. https://www.griddy.com/post/griddy-update-why-energy-prices-were-sky-high-this-week https://www.griddy.com/post/griddy-update-why-energy-prices-...

X-Istence 6y ago
It was artificial in that the Public Utility Commission forced the price up to force more non-retail load to be shed by wholesale customers (think fabrication and industry). http://www.puc.texas.gov/51617WinterERCOTOrder.pdf http://www.puc.texas.gov/51617WinterERCOTOrder.pdf Retail customers weren't expected to be directly affected by wholesale pricing of energy, but when a provider passes through the wholesale price directly that goes out the window.
- Spivak 6y ago
  Yeah but this was a hack and the side-effects should still be addressed. If the intent was to force the price to a point where everyone’s system trips and automatically stops buying but just relied on everyone having that set up then that’s on the commission to make it right when that assumption turned out to be false for some people. They should make everyone whole by charging the real market prices for that stretch of time.
deleted 6y ago
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ffggvv 6y ago

seems like the government is going to bail out these people anyway so this entire discussion is a moot point

jesstaa 6y ago

Amber Electric in Australia has this same model of passing the wholesale prices on to customers. But they have a cap. "We pass through the 30 minute wholesale prices directly, and this is typically significantly cheaper than the Government’s Default Market Offer, but to give you peace of mind we guarantee you will never pay more than the Default Market Offer (or VMO in VIC) over a year or we’ll refund the difference." https://help.amberelectric.com.au/hc/en-us/articles/360037454851 https://help.amberelectric.com.au/hc/en-us/articles/36003745... I think this is only possible because there is lots of regulation on electricity providers in Australia.

lmilcin 6y ago

I work for a bank in risk. The premise of the article is correct. Risk is cost. A company that can manage their risks better face less costs and ones that can eliminate the risk altogether (for example by passing it to their customers) fares even better. Normally, companies like Griddy buy financial products (which I help build) that let them insulate themselves from some portion of that risk. These products are not sold for free, obviously. When you buy an insurance it is understood that the insurance company is going to make some money on it. You buy insurance because you want to insulate yourself from an event that could potentially cripple your finance, living standards or future prospects for a long time. By passing the risk to their clients, Griddy did not have to pay for any kind of insurance or hedge against market volatility in any way. Unfortunately, people who bought this were not savvy enough to understand they need to insure themselves in some way and that this is not really worth it. It does not help that it is apparently not that easy to change where you buy energy when nobody wants new clients and would gladly get rid of the ones they already have. --- I am not from US and I also don't know energy markets, but my understanding is that these kinds of markets are going to be volatile because of basic fact that energy demand is quite inelastic. Normally, when the demand is elastic and the price goes up, some people would decide to stop buying thus keeping some kind equilibrium between supply and demand at some sensible price. Unfortunately, most people will not decide to stop heating their houses when demand is not able to meet supply and this means energy market can behave in an extremely volatile way. What I wonder is where are businesses, industry, factories that I think should normally consume most of the energy and should be first to switch off when supply falls. People wanted energy to be deregulated? I personally think basic necessities that people absolutely need to have should be regulated to some degree. You don't want to wake up and find a medicine you need to sustain your life just went 10000 percent up because of some random market event or that your hospital suddenly can't buy energy because it is too expensive. Some systems (like home budgets or small businesses) are built on a very tight margins and are really sensitive to that kind of volatility. Maybe large companies can absorb large swings in prices but normal people should not be living in fear that their livelihood is going to be taken from them for some random market swing or AI decision.