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Two major problems that need to be considered with using localized pricing are sudden bidding wars and partitioning. Let's say locally you have a few factories
by belorn 2y ago
Two major problems that need to be considered with using localized pricing are sudden bidding wars and partitioning.
Let's say locally you have a few factories when a sudden drop in supply occurs in the energy market. The biggest costs of those factories are personnel, equipment and building, so rather than shutting down they will be willing to pay much more for energy than what is rational in the market in order to continue producing and maintain contracts in the short term. Long term they may move away to a more energy stable and cheaper location, but for the next 10-20 years they will eat the occasional spike in price. Everyone else who locally live there can't eat a sudden 100x in energy costs, with the result that they will vote into office politicians that protect against such situations, and those politicians will in turn spread out the problem over a wider area where areas with stable supply of energy can help through funding (higher energy price) and transmit energy to areas with less stable energy. Alternatively they can pay their citizens' bills directly, as happened during the energy crisis a couple years ago, money that then get taken from the general budget (paid through taxes).
The other issue is partitioning. The more local zones you get, the more borders you get between those zones. People living on the border will see a unreasonable price difference depending if their house/town/city happened to land on one side or the other. This feels unfair, which results in upset citizens, resulting in people voting in politicians that can fix the situation. Politicians then feel a pressure to even out the prices among the zones, using things like adjusting local taxes.
As a general rule, the voting population want stable energy availability, stable prices and fair prices that are similar to everyone else.
- pclmulqdq 2y agoPower demand is often inelastic. There are many places in summer where people would pay $200/kWh to run a small air conditioning unit, for example, when their normal price of power is $0.10/kWh. There is no reason to shift toward generation sources that have price uncertainty when demand is inelastic like this. See the exact same thing in healthcare. The proper solution to this economic problem at a societal level is to have a predictable low price of available power.
- sbierwagen 2y agoThere are "many" places where people would pay US$200 to run an air conditioner for one hour?
- pclmulqdq 2y agoHospitals, specialty warehouses, datacenters, the list goes on. Some private citizens in Arizona or Texas, too.
- quickthrowman 2y ago> There are many places in summer where people would pay $200/kWh to run a small air conditioning unit, for example, when their normal price of power is $0.10/kWh. I don’t know anyone that would pay $200/hr to run a 1kW air conditioner. I’d just go in my air conditioned car and pay for gasoline..
- crmd 2y agoParent may be referring to specialty units that for example chill expensive perishable medication.
- quickthrowman 2y agoThat sort of facility will have diesel generators for backup power, they will be maintained and tested monthly, load banked yearly. Even if the generators failed, renting a trailer mounted diesel generator costs much less than $200/kWh.
- pclmulqdq 2y agoIf you really want to turn everyone who runs a facility that needs power for under $10/kWh into an energy trader who has to build a facility with a larger generator than needed and a battery bank and everything else, there is a huge amount of economic loss involved in that. Energy is cheap. Energy should be cheap. That infrastructure should remain for disasters. Running those generators is not free, and puts wear on them. Also, starting up those generators takes time and puts a certain amount of wear on them, so you are now talking about also having batteries and other equipment to cover short periods and the gap during generator startup. And now when do you spin up the generator? Do you spin it up when the instantaneous price of a kWh goes over a certain threshold or do you wait? All of these are now things that every single industrial facility has to think about.
- ViewTrick1002 2y agoIf you can't handle volatile prices and know your demand in advance then simply by PPAs or energy futures? You know, the standard method all markets use to handle volatility. But apparently electricity is different and we need enormous subsidies instead.
- nradov 2y agoIt's simply not realistic to expect consumers or most small businesses to participate in futures markets. And futures markets sometimes break down with the counterparty failing to deliver. That's not a problem with most commodities but electricity shortages cause real problems.
- schiffern 2y agoI expect the only viable solution left is to go around the meter using an aggregator like Tesla Autobidder. A large entity consolidates many home batteries as one "virtual" battery, handles the grid futures prediction and dispatching for a cut, and re-distributes a majority of revenue back to the battery owners. This effectively uses the existing behind-the-meter grid market to make an end-run around current perverse (non-local, non-instantaneous) end-customer pricing schemes.
- swamp_donkey 2y agoA downside to these schemes is that the stability of the electric system now also depends on large communication networks and some computer solving some algorithm. I can imagine the outages. I prefer my power outages to be caused by good old fashioned weather rather than Hadoop kubernetes cluster operator eventually consistent race error.
- schiffern 2y agoYes I agree. Ideally there's an ecosystem with many providers, minimizing the impact of any one system failure. More likely, the NSA / Homeland Security will assist large providers in system hardening and resilience.
- pjc50 2y agoEveryone adapts to the single most expensive uneven form of local pricing: property prices. I think there's a very strong case to link grid and generation capacity improvements to local pricing in the effective area, even if it doesn't end up being through the market. Make the link explicit: "if this pylon project is built, we will give everyone in the receiving county 1p/unit off their bill for five years."
- tlb 2y agoPeople only have to think about property pricing every several years, when they move. Electricity spot prices change by the minute. So the mental burden is quite different.
- swamp_donkey 2y ago“Nodal pricing” exists in several markets but isn’t often used. One example is in Ontario the nodal price in Thunder Bay was always very low since industry there had collapsed but there were still three coal fired power plants. They could bid a low price so it would be accepted, and due to low local demand the supply and demand solved for a low price in Thunder Bay, but due to transmission constraints all of the bidders could not generate what they bid, so they would have to be constrained off. I can’t recall if they got a payment for the power they weren’t able to generate.