6 ms·

Let's say there's not enough supply. People are asking for X, and peaker plants can offer it at Y. They would also be willing to offer it at 10% of Y. At 1% of

by rtpg 5y ago

Let's say there's not enough supply. People are asking for X, and peaker plants can offer it at Y. They would also be willing to offer it at 10% of Y. At 1% of Y! What sort of societal good is being offered by making it so that people are on the hook for a much higher price than what is needed for guaranteeing supply? What sort of value is added? The point of all this stuff is so that people produce electricity, and others can purchase it at a reasonable price. It's not to find some hypothetical equilibrium using a model that assumes atomicity of actors and some sort of instant feedback loop that didn't actually exist during the blackouts.

panarky 5y ago
The rational profit-maximizing strategy is to minimize spending on routine maintenance and winterization, which predictably results in supply that will occasionally fail catastrophically, and then pocket billions in windfall profits during each catastrophe. If the state's objective is to maximize corporate profits at the expense of ratepayers, they have succeeded. But if the objective is to reduce the frequency of catastrophes, the state might consider reducing the incentive to produce catastrophes.
- weaksauce 5y ago
  > If the state's objective is to maximize corporate profits at the expense of ratepayers, they have succeeded. welcome to republican lead texas that deregulated the power grid and decided to isolate the grid instead of playing well with others.
- specialist 5y ago
  aka Disaster Capitalism
- coryrc 5y ago
  Unless all of your company's generators go down and you have to buy from another company to supply your fixed-rate customers, then you'll lose your shirt. Or if you tried to cheap out and always buy at market rate.
- netizen-936824 5y ago
  From your statement it sounds like profit maximization is anything but rational
- roenxi 5y ago
  Are you sure about that? Because people often come up with theories about how the capitalists are about to abandon everyone to their fate and then it turns out capitalism leads to Waffle House [0]. It makes capitalist sense to do disaster planning. There needs to be evidence that the incentives point to scrimping on maintenance. Usually the incentives for capitalists is to preserve their capital and keep it is great repair. The is a strong, rational incentive to solve problems like winterisation because the revenue is higher than normal if someone can (and potential profits are much higher). Capitalism will just try to do it cheaply and to a standard that customers are happy with rather than in a politically showy fashion with gold plated "see I've thrown the kitchen sink at this!" style. But it will nevertheless do it if there is any money at all to be had. [0] https://en.wikipedia.org/wiki/Waffle_House#Disaster_recovery https://en.wikipedia.org/wiki/Waffle_House#Disaster_recovery
  - mjburgess 5y ago
    https://en.wikipedia.org/wiki/Collective_action_problem https://en.wikipedia.org/wiki/Collective_action_problem
    - roenxi 5y ago
      You're going to need to spell your point out a little more than just a link. If I manage to get in a position where I'm the only person in Texas selling power in a snowstorm I'm going to die filthy rich. That is the opposite of the collective action problem. There are enormous rewards for an actor the less other people act. Which is one of the reasons bigger corporations do disaster planning, it lets them scoop up profits when prices are higher. Capitalists don't give up easily if there is a person willing to spend money on something. They have flaws, but motivation to provide goods and services isn't one of them.
      - mjburgess 5y ago
        My point was that simple a-priori logic of the kind you offered regularly fails. A fast-food restaurant who wants to keeps its machines running has profit-driven feedback loops of a radically different nature than those of an energy market (esp. when such a market has natural monopolies). And likewise, markets are amoral. If the "market" opts for a failure every decade over a higher-priced day-to-day run... this isnt "rational" or "correct" or "ethical" or whatever. The way a market happens to function is amoral. You can make the argument that over fairly short time horizons in non-critical areas "meeting consumer demand" in most cases has a certain consequentialist justification. This doesnt carry over, a-priori to all possible cases. Ie., it is quite reasonable for a society via a democratic expression of ethical judgement to say "the market is not here considering the long-term impact in the right ethical manner"... ie., that being without power when it's -20 outside & affecting the whole population in ways not priced in by the market is a *moral failure*. It is the prerogative of the collective to say at once "here's how it should be", rather than via iterated interactions "here's how its happened to be".
sremani 5y ago
You want redundancy in the system, you have to pay the piper. What is the point for me to run a redundant but operationally more expensive system than my competition - when at the time my redundant infra is the only option, I do not get to cash out. You can see as whatever way you want, but Price is signal and it is better overall for the system to let Price to spike to certain insane levels. Should there be some kind of common-sense regulation for curtailing bad behavior perhaps. If you need people or companies to build in redundancy - you have to pay the price or just run the efficient but fragile system and enjoy the black outs.
londons_explore 5y ago
There are lots of people who buy direct from the grid who would happily change behaviour when Y gets big... For example, at $500/MWh, I'll shut down my glassworks and pottery factory. At $5,000/MWh, I'll shut down the datacenter. At $50,000 I'll hook up a diesel generator from my shed. At $500,000 I'll personally get on a treadmill and start running, because the 100 watts I can generate that way gives me a better hourly wage than I can find elsewhere. In fact, the reason for grid failure when prices aren't capped is entirely people on 'fixed price' schemes who do not modify their behaviour when faced with extreme prices. The future is electric meters which have a knob on the front for "max price I'm willing to pay" and shut off if prices exceed that. If someone is happy to pay more, they can set their max price higher.
- rtpg 5y ago
  I understand that people will adjust their consumption based on price, and I think that there are generally some interesting ideas with trying to fight the general logistical challenges of non-static demand through pricing. I think the core issue here (which is honestly my problem with surge pricing as well) is that there are limits in these systems. People in the cold need some heating, so no matter how high the price is there's going to be a floor of how much energy will be consumed. Peaker plants might exist, but there are only so many of those, so no matter how much demand there is supply can only vary by so much. Given those factors, it feels like the reasonable thing to do is to set price floors and ceilings that are "reasonable". If there needs to be exceptional pricing, honestly this is where the State can step in (and it can buy insurance or whatever for this) to help. But $9000/mwh isn't helping to relieve problems (especially when people don't even know!). Even in your cutoff knob, it's like... OK you are going to set a max price, and cut off your thing. Are you setting a max price for your fridge or your heating in winter? Or rather, would most people? Hell, what commercial enterprise is "shutting down the datacenter"? If we are going to say that pricing is a signal for controlling consumption, you need a feedback loop. That implies communicating price changes and giving people time to adjust for that. Generally this has been solved through the easy-to-understand "at these times it's cheaper" and "at these times it's more expensive". You can also have fun with seasonal variations as well. It's not 1-to-1 but hell, just charge more or less right and seasonally it should all average out nicely, and it doesn't require nearly as much futzing around. Market rate feedback could be done purely at the grid level, without exposing that to customers in real time, and mostly work. It removes arbitrage opportunities for energy providers, but that's a feature in my book.
erincandescent 5y ago
The ERCOT maket is stupidly designed - it excluded demand from shed load from pricing calculations. This caused the price of electricity to drop to a point where it was uneconomical for many gas power plants to operate (because of the high spot price of gas) The immediate ramp to the $9000 cap was designed to alleviate this. Yes, it's boneheaded, but I imagine any other manual override of the algorithm would have taken longer to get people to agree to. The conclusion I keep coming to is that so many free market maximalists are absolutely terrible at designing markets.
- caseysoftware 5y ago
  > The conclusion I keep coming to is that so many free market maximalists are absolutely terrible at designing markets. There's wisdom in this statement but a better phrasing would replace "free market maximalists" to "humans." Anyone who thinks they can "design a market" assumes all rational, predictable (aka not-human) actors.

by rtpg 5y ago

panarky 5y ago

The rational profit-maximizing strategy is to minimize spending on routine maintenance and winterization, which predictably results in supply that will occasionally fail catastrophically, and then pocket billions in windfall profits during each catastrophe. If the state's objective is to maximize corporate profits at the expense of ratepayers, they have succeeded. But if the objective is to reduce the frequency of catastrophes, the state might consider reducing the incentive to produce catastrophes.

weaksauce 5y ago
> If the state's objective is to maximize corporate profits at the expense of ratepayers, they have succeeded. welcome to republican lead texas that deregulated the power grid and decided to isolate the grid instead of playing well with others.
specialist 5y ago
aka Disaster Capitalism
coryrc 5y ago
Unless all of your company's generators go down and you have to buy from another company to supply your fixed-rate customers, then you'll lose your shirt. Or if you tried to cheap out and always buy at market rate.
netizen-936824 5y ago
From your statement it sounds like profit maximization is anything but rational
roenxi 5y ago
Are you sure about that? Because people often come up with theories about how the capitalists are about to abandon everyone to their fate and then it turns out capitalism leads to Waffle House [0]. It makes capitalist sense to do disaster planning. There needs to be evidence that the incentives point to scrimping on maintenance. Usually the incentives for capitalists is to preserve their capital and keep it is great repair. The is a strong, rational incentive to solve problems like winterisation because the revenue is higher than normal if someone can (and potential profits are much higher). Capitalism will just try to do it cheaply and to a standard that customers are happy with rather than in a politically showy fashion with gold plated "see I've thrown the kitchen sink at this!" style. But it will nevertheless do it if there is any money at all to be had. [0] https://en.wikipedia.org/wiki/Waffle_House#Disaster_recovery https://en.wikipedia.org/wiki/Waffle_House#Disaster_recovery
- mjburgess 5y ago
  https://en.wikipedia.org/wiki/Collective_action_problem https://en.wikipedia.org/wiki/Collective_action_problem
  - roenxi 5y ago
    You're going to need to spell your point out a little more than just a link. If I manage to get in a position where I'm the only person in Texas selling power in a snowstorm I'm going to die filthy rich. That is the opposite of the collective action problem. There are enormous rewards for an actor the less other people act. Which is one of the reasons bigger corporations do disaster planning, it lets them scoop up profits when prices are higher. Capitalists don't give up easily if there is a person willing to spend money on something. They have flaws, but motivation to provide goods and services isn't one of them.
    - mjburgess 5y ago
      My point was that simple a-priori logic of the kind you offered regularly fails. A fast-food restaurant who wants to keeps its machines running has profit-driven feedback loops of a radically different nature than those of an energy market (esp. when such a market has natural monopolies). And likewise, markets are amoral. If the "market" opts for a failure every decade over a higher-priced day-to-day run... this isnt "rational" or "correct" or "ethical" or whatever. The way a market happens to function is amoral. You can make the argument that over fairly short time horizons in non-critical areas "meeting consumer demand" in most cases has a certain consequentialist justification. This doesnt carry over, a-priori to all possible cases. Ie., it is quite reasonable for a society via a democratic expression of ethical judgement to say "the market is not here considering the long-term impact in the right ethical manner"... ie., that being without power when it's -20 outside & affecting the whole population in ways not priced in by the market is a *moral failure*. It is the prerogative of the collective to say at once "here's how it should be", rather than via iterated interactions "here's how its happened to be".

sremani 5y ago

You want redundancy in the system, you have to pay the piper. What is the point for me to run a redundant but operationally more expensive system than my competition - when at the time my redundant infra is the only option, I do not get to cash out. You can see as whatever way you want, but Price is signal and it is better overall for the system to let Price to spike to certain insane levels. Should there be some kind of common-sense regulation for curtailing bad behavior perhaps. If you need people or companies to build in redundancy - you have to pay the price or just run the efficient but fragile system and enjoy the black outs.

londons_explore 5y ago

There are lots of people who buy direct from the grid who would happily change behaviour when Y gets big... For example, at $500/MWh, I'll shut down my glassworks and pottery factory. At $5,000/MWh, I'll shut down the datacenter. At $50,000 I'll hook up a diesel generator from my shed. At $500,000 I'll personally get on a treadmill and start running, because the 100 watts I can generate that way gives me a better hourly wage than I can find elsewhere. In fact, the reason for grid failure when prices aren't capped is entirely people on 'fixed price' schemes who do not modify their behaviour when faced with extreme prices. The future is electric meters which have a knob on the front for "max price I'm willing to pay" and shut off if prices exceed that. If someone is happy to pay more, they can set their max price higher.

rtpg 5y ago
I understand that people will adjust their consumption based on price, and I think that there are generally some interesting ideas with trying to fight the general logistical challenges of non-static demand through pricing. I think the core issue here (which is honestly my problem with surge pricing as well) is that there are limits in these systems. People in the cold need some heating, so no matter how high the price is there's going to be a floor of how much energy will be consumed. Peaker plants might exist, but there are only so many of those, so no matter how much demand there is supply can only vary by so much. Given those factors, it feels like the reasonable thing to do is to set price floors and ceilings that are "reasonable". If there needs to be exceptional pricing, honestly this is where the State can step in (and it can buy insurance or whatever for this) to help. But $9000/mwh isn't helping to relieve problems (especially when people don't even know!). Even in your cutoff knob, it's like... OK you are going to set a max price, and cut off your thing. Are you setting a max price for your fridge or your heating in winter? Or rather, would most people? Hell, what commercial enterprise is "shutting down the datacenter"? If we are going to say that pricing is a signal for controlling consumption, you need a feedback loop. That implies communicating price changes and giving people time to adjust for that. Generally this has been solved through the easy-to-understand "at these times it's cheaper" and "at these times it's more expensive". You can also have fun with seasonal variations as well. It's not 1-to-1 but hell, just charge more or less right and seasonally it should all average out nicely, and it doesn't require nearly as much futzing around. Market rate feedback could be done purely at the grid level, without exposing that to customers in real time, and mostly work. It removes arbitrage opportunities for energy providers, but that's a feature in my book.

erincandescent 5y ago

The ERCOT maket is stupidly designed - it excluded demand from shed load from pricing calculations. This caused the price of electricity to drop to a point where it was uneconomical for many gas power plants to operate (because of the high spot price of gas) The immediate ramp to the $9000 cap was designed to alleviate this. Yes, it's boneheaded, but I imagine any other manual override of the algorithm would have taken longer to get people to agree to. The conclusion I keep coming to is that so many free market maximalists are absolutely terrible at designing markets.

caseysoftware 5y ago
> The conclusion I keep coming to is that so many free market maximalists are absolutely terrible at designing markets. There's wisdom in this statement but a better phrasing would replace "free market maximalists" to "humans." Anyone who thinks they can "design a market" assumes all rational, predictable (aka not-human) actors.