4 ms·
SO here's the thing: " 3 - Market mechanisms are needed to incentivize surplus capacity, or else we wind up with blackouts." Market mechanisms DO incentivize
by ocschwar 5y ago
SO here's the thing:
" 3 - Market mechanisms are needed to incentivize surplus capacity, or else we wind up with blackouts."
Market mechanisms DO incentivize surplus capacity. There are peaker plants stationed all over the US that operate under 24 hours a year. The rest of the time they're either paid to be on standby through a capacity auction, or they're just not paid.
SOme of these plants also exist in Texas. And they are there because companies crunched the numbers based on past data and saw that the money coming in for those few hours is enough to cover that whole year.
The thing is, those high pricing events, which usually happen during heat waves, are something you can quantify: how often do they happen, how much money can you make, how much money will it cost to set up and wait for those events. Probabilty and severity are both quantifiable.
The polar vortex events that hit Texas this year, last year, and 10 years ago, are something that is not quantifiable. I know, because otherwise my company would be quantifying it. SO it's high severity, incalculable probability - ergo a black swan event. The market cannot deal with those.
- bryanlarsen 5y agoThat was a one in a century or so storm. It was predictable.
- jabl 5y agoHow are you going to get investment money for a project that may, or with some probability may not, hit the jackpot sometime during the next century but otherwise lose money all the time?
- denton-scratch 5y agoWhy do once-in-a-century weather events seem to happen so much more than once in a century?
- ocschwar 5y agoPredictable isn't good enough. Predictable is a reason for a government regulation. Without that, you need quantifiable. What is the probability of a polar vortex this year? (P) How many hours of high prices would that cause? (H) What will the price be during those hours ? (Pr) What is the probability that our grid uplink will go down and cut us off? (Pd) So, on the profit side: P x H x Pr x (1-Pd) Liability: What is the probability that our failure to winterize will cause a blackout? (Pb) How much damage will that cause ? (D) How much of it is our legal responsibility? (L) Pb x D x L Now: how much will winterizing cost? C The big question: C ?>? Pb x D x L + P x H x Pr x (1-Pd) Complicating factors: in Texas, L is 0. For everyone. And P,H,Pr, and Pd are all non-zero, non-negligible, but not quantifiable.