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> The capacity to handle that rarely gets used, but you still want to have it. So the price you have to pay to the person who can provide it is really, really h

by jabl 5y ago

> The capacity to handle that rarely gets used, but you still want to have it. So the price you have to pay to the person who can provide it is really, really high, but (and because) it's only paid for a short period of time. Or nobody will bother to build that capacity and when that situation happens there won't be enough power at any price. There's a lot of economic theory pointing to the economic efficiency of marginal cost pricing. But the wholesale electricity market is a pretty "synthetic" design, and combined with the technical limitation demand must match supply exactly every second, marginal cost pricing leads to huge volatility. I'm not really sure what the solution would be, though. I'm not aware of any workable alternative (competitive) market model. There's of course ye olde regulated utility model, but, yeah, maybe we don't want to go back to that.

AnthonyMouse 5y ago
One way to do it is insurance. The customer pays premiums so they never have to pay more than e.g. ten times the ordinary price no matter what the true market price is, or buys from a retailer who charges somewhat more in order to do the same. The cheapest insurance provider should then be a company that can provide emergency capacity to the grid, because the time they have to pay out claims is the same time they're making bank by selling power for >$100/kWh. The money from the premiums goes to providing the emergency capacity and then when the event happens the claims and the revenues cancel out. Another alternative is to give customers a price threshold at which they don't want electricity. If the price exceeds $2/kWh, just immediately shut off my service. For someone with their own generator this could be a good deal (they get to pay a lower rate by not buying the price insurance), and then it drops demand out of the grid when there isn't enough supply.
- jabl 5y ago
  > One way to do it is insurance. The customer pays premiums so they never have to pay more than e.g. ten times the ordinary price no matter what the true market price is, or buys from a retailer who charges somewhat more in order to do the same. Sure, that's one way, ultimately all the way to the end user paying a flat fee, which I guess is what a majority of residential customers are in fact doing. But I wonder, if all the producers and consumers are hedged in one way or other against too low/too high prices, why have that wholesale price in the first place if it's just a fantasy number that affects nobody? > Another alternative is to give customers a price threshold at which they don't want electricity. If the price exceeds $2/kWh, just immediately shut off my service. This is in essence what RTO's are doing today, just for the whole region they are serving and not each customer separately. That is, there is a roof price, and instead of the price going over that limit in order to incentivize more generation to come online or customers to reduce demand, there will be rolling blackouts. So in general wrt marginal cost pricing, I was thinking of something along the lines of https://www.researchgate.net/publication/323378820_The_Use_of_Marginal_Energy_Costs_in_the_Design_of_US_Capacity_Markets https://www.researchgate.net/publication/323378820_The_Use_o... This is only going to get worse as more and more generation will be near-zero marginal cost like renewables and nuclear.

by jabl 5y ago

AnthonyMouse 5y ago

One way to do it is insurance. The customer pays premiums so they never have to pay more than e.g. ten times the ordinary price no matter what the true market price is, or buys from a retailer who charges somewhat more in order to do the same. The cheapest insurance provider should then be a company that can provide emergency capacity to the grid, because the time they have to pay out claims is the same time they're making bank by selling power for >$100/kWh. The money from the premiums goes to providing the emergency capacity and then when the event happens the claims and the revenues cancel out. Another alternative is to give customers a price threshold at which they don't want electricity. If the price exceeds $2/kWh, just immediately shut off my service. For someone with their own generator this could be a good deal (they get to pay a lower rate by not buying the price insurance), and then it drops demand out of the grid when there isn't enough supply.

jabl 5y ago
> One way to do it is insurance. The customer pays premiums so they never have to pay more than e.g. ten times the ordinary price no matter what the true market price is, or buys from a retailer who charges somewhat more in order to do the same. Sure, that's one way, ultimately all the way to the end user paying a flat fee, which I guess is what a majority of residential customers are in fact doing. But I wonder, if all the producers and consumers are hedged in one way or other against too low/too high prices, why have that wholesale price in the first place if it's just a fantasy number that affects nobody? > Another alternative is to give customers a price threshold at which they don't want electricity. If the price exceeds $2/kWh, just immediately shut off my service. This is in essence what RTO's are doing today, just for the whole region they are serving and not each customer separately. That is, there is a roof price, and instead of the price going over that limit in order to incentivize more generation to come online or customers to reduce demand, there will be rolling blackouts. So in general wrt marginal cost pricing, I was thinking of something along the lines of https://www.researchgate.net/publication/323378820_The_Use_of_Marginal_Energy_Costs_in_the_Design_of_US_Capacity_Markets https://www.researchgate.net/publication/323378820_The_Use_o... This is only going to get worse as more and more generation will be near-zero marginal cost like renewables and nuclear.