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The people who were paying $1000/hr were people who had selected an energy plan where they paid the wholesale rate. Normally that rate was a small fraction of t

The people who were paying $1000/hr were people who had selected an energy plan where they paid the wholesale rate. Normally that rate was a small fraction of the typical retail rate, but the risks should have been obvious to anyone of moderate intelligence. Playing the lottery - small downside, huge (albeit improbable) upside. Buying wholesale power unhedged - small upside, huge downside, and not all that unlikely - in the last few years here, we’ve had several hundred year storms.

amluto 3y ago
Clearly the solution is to get two electric meters, sign one up for normal rates, and sign the other one up for spot rates. And switch between them to use whichever is cheaper. I joke, but only somewhat. This whole model is pretty clearly at least a bit broken. I don’t believe for a second that electricity cost $1k/kWh in any way that truly makes sense. Perhaps marginal electricity cost that much, but that’s a very different statement. I wonder whether there is good research on market design for goods like electricity that are: - Generated at a rate that is only weakly dependent on demand. (But may have expensive sources that will only operate when it’s economical to do so.) - Are generated by very capital-intensive plants. - Are mostly not storable. Taking delivery of electricity now and reselling later is expensive. - Are needed by users in a mostly inelastic manner. Cloud computing resources are similar. The “spot” electricity and cloud compute markets are a bit odd. They don’t work at all like spot commodities, many of which can be put in warehouses.
- eru 3y ago
  > Perhaps marginal electricity cost that much, but that’s a very different statement. Marginal electricity is what people use at the margin.
  - amluto 3y ago
    Which means what, exactly? Operating your refrigerator is not marginal usage. Heating your house is only marginal usage to the extent that it’s somewhat optional and its cost depends on the weather. It’s certainly not marginal in the sense that people are looking at the price tag for one hour of heater operating and deciding accordingly.
    - eru 3y ago
      If you know ahead of time that you are going to use your refrigerator throughout the next 12 months _and_ you want peace of mind, perhaps you shouldn't buy spot electricity for that? There's a futures market for that. As a retail customer, you probably wouldn't want to use it directly. But companies can offer that as a service for you, and give you a long running contract that they hedge via the futures market. To the retail customer that looks pretty much like a regular old contract, but with lighter regulation on prices on the backend. Btw, my comment was meant in the sense that from the point of view of the market, one individual household's electricity consumption wouldn't move prices too much. Thus it's at the margin.
- jabl 3y ago
  > I wonder whether there is good research on market design for goods like electricity that are: Plenty. E.g. a well argued defense of the current energy-only marginal pricing model: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4087528 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4087528 Or something different?: https://doi.org/10.1016/j.tej.2019.02.010 https://doi.org/10.1016/j.tej.2019.02.010

amluto 3y ago

Clearly the solution is to get two electric meters, sign one up for normal rates, and sign the other one up for spot rates. And switch between them to use whichever is cheaper. I joke, but only somewhat. This whole model is pretty clearly at least a bit broken. I don’t believe for a second that electricity cost $1k/kWh in any way that truly makes sense. Perhaps marginal electricity cost that much, but that’s a very different statement. I wonder whether there is good research on market design for goods like electricity that are: - Generated at a rate that is only weakly dependent on demand. (But may have expensive sources that will only operate when it’s economical to do so.) - Are generated by very capital-intensive plants. - Are mostly not storable. Taking delivery of electricity now and reselling later is expensive. - Are needed by users in a mostly inelastic manner. Cloud computing resources are similar. The “spot” electricity and cloud compute markets are a bit odd. They don’t work at all like spot commodities, many of which can be put in warehouses.

eru 3y ago
> Perhaps marginal electricity cost that much, but that’s a very different statement. Marginal electricity is what people use at the margin.
- amluto 3y ago
  Which means what, exactly? Operating your refrigerator is not marginal usage. Heating your house is only marginal usage to the extent that it’s somewhat optional and its cost depends on the weather. It’s certainly not marginal in the sense that people are looking at the price tag for one hour of heater operating and deciding accordingly.
  - eru 3y ago
    If you know ahead of time that you are going to use your refrigerator throughout the next 12 months _and_ you want peace of mind, perhaps you shouldn't buy spot electricity for that? There's a futures market for that. As a retail customer, you probably wouldn't want to use it directly. But companies can offer that as a service for you, and give you a long running contract that they hedge via the futures market. To the retail customer that looks pretty much like a regular old contract, but with lighter regulation on prices on the backend. Btw, my comment was meant in the sense that from the point of view of the market, one individual household's electricity consumption wouldn't move prices too much. Thus it's at the margin.
jabl 3y ago
> I wonder whether there is good research on market design for goods like electricity that are: Plenty. E.g. a well argued defense of the current energy-only marginal pricing model: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4087528 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4087528 Or something different?: https://doi.org/10.1016/j.tej.2019.02.010 https://doi.org/10.1016/j.tej.2019.02.010