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> Turns out the “ideal market” is a dystopia instead of the intended utopia. Why? This market is pretty much ideal and sets the right incentives. You have litt

> Turns out the “ideal market” is a dystopia instead of the intended utopia. Why? This market is pretty much ideal and sets the right incentives. You have little to no information asymmetry, you need to strike a price that clears the market because you must balance production and demand. Why should sellers of renewable energy be forced to sell at their marginal cost when they are selling a commodity where somebody else gets triple the price?

chgs 2y ago
The incentive is to produce 99 Units at £1 and 1 unit at £100 and sell 100 for £10,000, rather than producing 100 Units at £1
- roenxi 2y ago
  The incentive is to sell all 100 units for £infinity. The incentive for the seller to sell at a high price isn't relevant. They don't have the ability to act on it. If they did, they wouldn't stop at £10,000. I'd pick numbers like £1,000,000,000,000 at a minimum if I was a seller and could truly set my own price based on my incentives.
  - chgs 2y ago
    That’s the beauty. The same company owns both the cheap cost one and can limit the supply just enough to keep the profit maximised. There isn’t an ideal free market in electricity generation.
    - roenxi 2y ago
      If the UK has banned all companies except one from supplying electricity then they will without doubt see eye watering prices. But that has nearly nothing to do with the pricing scheme they use and a lot to do with the one company part of the picture.
      - chgs 2y ago
        It hasn’t, howver the natural state for these companies is to merge and diversify to maximise their profits, and the cost of entry into electicity generation is not like launching a bbc backed startup.
littlestymaar 2y ago
> Why? This market is pretty much ideal and sets the right incentives. Says whom? > Why should sellers of renewable energy be forced to sell at their marginal cost when they are selling a commodity where somebody else gets triple the price? It doesn't make sense to force them to sell at their marginal cost either (which is much less than their operating cost, consisting mostly of fixed costs). In fact, in real life, for most good or services the marginal price is decreasing with volume (or even zero for most of the supply curve with occasional spikes), pricing at the marginal cost means you're pricing way below the average cost and will drive all businesses to their doom. In the electricity world, this kind of pricing only makes sense for electricity produced from fossil fuel as the marginal cost represents most the underlying cost, but it makes zero sense for renewable or nuclear where the cost is swallowed upfront and close to zero afterwards.
- data_marsupial 2y ago
  do you have an alternative market design in mind?
  - littlestymaar 2y ago
    Long term contracts (or state monopoly) at price based on average cost. Typically what existed in France and other places of Europe before we decided to “liberalize the energy market”.
- moooo99 2y ago
  > Says whom? I do and given the practice is pretty common, it seems like most people would. To be clear, the incentive is: you make more money when you can produce energy cheaper than everybody else. > In the electricity world, this kind of pricing only makes sense for electricity produced from fossil fuel as the marginal cost represents most the underlying cost, but it makes zero sense for renewable or nuclear where the cost is swallowed upfront and close to zero afterwards. Are capital costs not real underlying costs? If I borrow money from a bank I have to return that money plus interest. I would argue that this is a very real cost. Also, renewables do require maintenance. That is not as expensive as the ongoing cost of burning fossil fuel, but it’s still a cost

chgs 2y ago

The incentive is to produce 99 Units at £1 and 1 unit at £100 and sell 100 for £10,000, rather than producing 100 Units at £1

roenxi 2y ago
The incentive is to sell all 100 units for £infinity. The incentive for the seller to sell at a high price isn't relevant. They don't have the ability to act on it. If they did, they wouldn't stop at £10,000. I'd pick numbers like £1,000,000,000,000 at a minimum if I was a seller and could truly set my own price based on my incentives.
- chgs 2y ago
  That’s the beauty. The same company owns both the cheap cost one and can limit the supply just enough to keep the profit maximised. There isn’t an ideal free market in electricity generation.
  - roenxi 2y ago
    If the UK has banned all companies except one from supplying electricity then they will without doubt see eye watering prices. But that has nearly nothing to do with the pricing scheme they use and a lot to do with the one company part of the picture.
    - chgs 2y ago
      It hasn’t, howver the natural state for these companies is to merge and diversify to maximise their profits, and the cost of entry into electicity generation is not like launching a bbc backed startup.

littlestymaar 2y ago

> Why? This market is pretty much ideal and sets the right incentives. Says whom? > Why should sellers of renewable energy be forced to sell at their marginal cost when they are selling a commodity where somebody else gets triple the price? It doesn't make sense to force them to sell at their marginal cost either (which is much less than their operating cost, consisting mostly of fixed costs). In fact, in real life, for most good or services the marginal price is decreasing with volume (or even zero for most of the supply curve with occasional spikes), pricing at the marginal cost means you're pricing way below the average cost and will drive all businesses to their doom. In the electricity world, this kind of pricing only makes sense for electricity produced from fossil fuel as the marginal cost represents most the underlying cost, but it makes zero sense for renewable or nuclear where the cost is swallowed upfront and close to zero afterwards.

data_marsupial 2y ago
do you have an alternative market design in mind?
- littlestymaar 2y ago
  Long term contracts (or state monopoly) at price based on average cost. Typically what existed in France and other places of Europe before we decided to “liberalize the energy market”.
moooo99 2y ago
> Says whom? I do and given the practice is pretty common, it seems like most people would. To be clear, the incentive is: you make more money when you can produce energy cheaper than everybody else. > In the electricity world, this kind of pricing only makes sense for electricity produced from fossil fuel as the marginal cost represents most the underlying cost, but it makes zero sense for renewable or nuclear where the cost is swallowed upfront and close to zero afterwards. Are capital costs not real underlying costs? If I borrow money from a bank I have to return that money plus interest. I would argue that this is a very real cost. Also, renewables do require maintenance. That is not as expensive as the ongoing cost of burning fossil fuel, but it’s still a cost