3 ms·

What you explain was also implicitly included when I said "I get the intended logic" (just didn't want to make my post too long). The thing is that this so-cal

What you explain was also implicitly included when I said "I get the intended logic" (just didn't want to make my post too long). The thing is that this so-called free market works well for generating companies, but makes no sense for consumers. It doesn't matter how cheap producing the bulk of the electricity is, as long as gas isn't turned off completely the consumer always pays the price of gas. In a country evolving from (say) 100% gas to 90% renewables and 10% gas (I know I'm simplifying, these simple mixes don't really exist) the cost of electricity generation would fall through the floor, but the consumer would pay exactly the same. This is clearly dysfunctional, regardless of how nice it can be in theory. It's also not inevitable. You can set a cap to the prices, but then compensate sources that go over the cap (in practice, gas) so they don't operate at a loss. This is what the Iberian exception system is doing, and it works.

Gwypaas 4y ago
What you will accomplish with trying that is that producers will bid what they expect the price to be, instead of their production cost. Thus we still get the marginal cost like all other raw resource markets, but with extra complications. That is a much less efficient system with larger risks.
- Al-Khwarizmi 4y ago
  They already do that with the existing system. It often happened in Spain (pre Iberian exception) that gas isn't even used, but the price of hydro was set to something like (expected price of gas - 5 €) because they knew they could. So we end up paying the price of gas even when we don't use gas! Honestly, some people talk about the existing system as if it's this perfect free market... but in practice the bar is very low. The Iberian exception system is already showing in practice that it works better.
ragebol 4y ago
Also an option indeed, but eventually the consumers pay for this difference. The incentive with the 'normal' merit order model is that the most expensive generator is that they make barely a profit if at all. Not too attractive. Better build generation capacity that has lower operating costs (ie. no fuel, ie. renewables). At least, that is the theory. I really wonder what happens to this model and the incentives once renewables are the majority and stretch further along the merit-order curve's X axis, pushing out fossil fuels.

Gwypaas 4y ago

What you will accomplish with trying that is that producers will bid what they expect the price to be, instead of their production cost. Thus we still get the marginal cost like all other raw resource markets, but with extra complications. That is a much less efficient system with larger risks.

Al-Khwarizmi 4y ago
They already do that with the existing system. It often happened in Spain (pre Iberian exception) that gas isn't even used, but the price of hydro was set to something like (expected price of gas - 5 €) because they knew they could. So we end up paying the price of gas even when we don't use gas! Honestly, some people talk about the existing system as if it's this perfect free market... but in practice the bar is very low. The Iberian exception system is already showing in practice that it works better.

ragebol 4y ago

Also an option indeed, but eventually the consumers pay for this difference. The incentive with the 'normal' merit order model is that the most expensive generator is that they make barely a profit if at all. Not too attractive. Better build generation capacity that has lower operating costs (ie. no fuel, ie. renewables). At least, that is the theory. I really wonder what happens to this model and the incentives once renewables are the majority and stretch further along the merit-order curve's X axis, pushing out fossil fuels.