Clearing price for supplying power to Texas grid

Re: Clearing price for supplying power to Texas grid –$31.65

#101

Post by AnthonyMouse » Sun, Feb 21, 2021, 6:56 AM UTC

sep_field wrote: post #77

WalterBright wrote: post #45

Earlier quoted context omitted.

If the consumer retail electricity rate was allowed to float minute by minute, there'd be no need for "peaker" plants. The notion of fixed electricity rates is the source of most of the problems. After all, there are regular events where oil refineries go off like, burn down, blow up, etc., and yet I'm still able to buy gas because the pump prices go up, reducing demand to match the supply. Note that this big freeze…

One problem with this is it forms a regressive structure where poor people are priced out while rich people get to keep consuming at whatever rate they can stomach. It would work better and much more fairly if the floating rate was scaled by the net worth of the customer.

That's completely defeating the purpose of the price signal, which is to cause whoever is the most price sensitive to cut usage. By charging less to the people who are most price sensitive, the average price charged in order to deter usage would have to increase dramatically.

It also creates ridiculous perverse incentives where people with little money waste electricity in the midst of a shortage because they're not being charged the market price for it, forcing cuts in actually productive alternatives.

Re: Clearing price for supplying power to Texas grid –$31.65

#102

Post by kristjansson » Sun, Feb 21, 2021, 6:58 AM UTC

WalterBright wrote: post #48

mrDmrTmrJ wrote: post #34

Earlier quoted context omitted.

Respectfully, I don't see the issue as one of choosing to have a capacity market. There was ample excess capacity (at least 26GWs!), just no natural gas to run it as the natural gas infrastructure was frozen. So what was the nature of the failure? Well, there was not resiliency standard that required the natural gas infrastructure to be winterized. Because this infrastructure froze, the state ran out of methane ('nat…

> Do you see it differently? Yes. If minute-by-minute retail electricity pricing was there, then there'd be a large incentive to winterize the fuel supply, because the ones who didn't would lose out on the profits from higher electric rates from the ones who did.

Aren’t the generators already selling into a spot market that saw a multi thousand percent price increase in this demand peak, and are thus so incentivized? Providers AIUI are not responsible for any physical infrastructure, they’re selling volatility reduction by buying power from generators at spot and and sending it down publicly managed lines to customers for fixed rates.

I buy your point up thread that more responsive retail pricing would’ve reduce demand faster[1], but I think generators just failed to foresee the failure points of their systems and the potential severity of winter events despite significant incentives to do so.

Since the spot price hit its statutory cap, you might argue that the limit on potential windfall profits rendered winterization ROÍ negative - which might be true but if the only way to keep the lights on is to let the generators plan on pillaging a state in crisis, the state might want to step in to provide support beforehand.

[1] leaving aside the point the ‘reducing demand’, in this instance, means poor people are cold or worse.

Re: Clearing price for supplying power to Texas grid –$31.65

#103

Post by ncallaway » Sun, Feb 21, 2021, 7:00 AM UTC

aaur0 wrote: post #100

I am wondering can other states not step in here and help Texas by supplying electricity.

Largely not because the TX power grid mostly isn't physically connected to the grid of the rest of the US.

https://www.king5.com/mobile/article/news/verify/texas-indep...

My understanding is that this was largely deliberate on the part of the state of TX to minimize the impact of federal energy regulations on the TX grid.

The idea being that the federal regulations devise their authority from the regulation of interstate commerce via the commerce clause, but if TX chooses not to participate in interstate commerce, the federal regulations don't have authority to apply to TX.

Re: Clearing price for supplying power to Texas grid –$31.65

#104

Post by j4yav » Sun, Feb 21, 2021, 7:00 AM UTC

cbmuser wrote: post #39

ggm wrote: post #22

The market in power should only exist to optimise. Its become a rei-ified good in its own right, and is being gamed by bad faith actors with stranded assets (coal, oil) to make a point about green power and capital investment money they want. It's possible no power network could have avoided some of this, but its patently obvious a regulated power utility function needs investment, and the market is not the best mode…

> The energy market is not the solution. The energy market is the problem. No, unreliable power sources such as wind, solar and gas are the problem. Except for a short outage due to a sensor failure, the four nuclear reactors have been steadily supplying electricity. The overall availability of nuclear across the United States is >90%. It’s far more reliable than any other source of electricity. > https://www.energy.…

Aren't all of those used quite consistently and without issue in many places much colder than Texas?

Re: Clearing price for supplying power to Texas grid –$31.65

#105

Post by AnthonyMouse » Sun, Feb 21, 2021, 7:06 AM UTC

Dylan16807 wrote: post #69

WalterBright wrote: post #61

Earlier quoted context omitted.

In the 1970s, the feds decided they could set prices and allocate gas far more efficiently than the market. The result was many years of gas shortages and long lines. Reagan's first act in 1980 was an Executive Order to repeal all of that. The gas lines disappeared literally overnight, and have not returned in 40 years. I don't buy that anything is fundamentally different about electricity. > case of shortage you don…

> I'd change my behavior if rates doubled. Wouldn't you, too? But most customers want fixed-rate electricity. So in a free market, that's what they buy. The spot market largely only exists for suppliers, and if you run out of suppliers the problems with electricity are vastly harsher than you could ever get with gas. The combination of market + contracts + consumer preference ends up causing shortages. I'm not sugges…

> But most customers want fixed-rate electricity. So in a free market, that's what they buy.

Not necessarily.

In order to have fixed-rate electricity and not have rolling blackouts, the seller would effectively have to carry insurance (or some equivalent) against unexpected price increases and then use that money to bid at a loss on energy to supply it to customers during a shortage. The price of the insurance would have to be passed on to the customer. The more people who buy fixed-price contracts, the higher the insurance premiums would be, because the higher the variable prices would get when demand outstrips supply and customers on fixed-price contracts don't reduce consumption.

The customer could end up having to pay significantly more, hundreds or thousands of dollars a year, in order to have that insurance instead of the variable rate plan. There is a limit to how much people are willing to pay for a fixed rate.

And it's easy to see how someone could come out ahead by e.g. using that money to buy a backup generator and then disconnecting from the grid whenever variable prices are high.

Re: Clearing price for supplying power to Texas grid –$31.65

#106

Post by aaur0 » Sun, Feb 21, 2021, 7:10 AM UTC

ncallaway wrote: post #103

aaur0 wrote: post #100

I am wondering can other states not step in here and help Texas by supplying electricity.

Largely not because the TX power grid mostly isn't physically connected to the grid of the rest of the US. https://www.king5.com/mobile/article/news/verify/texas-indep... My understanding is that this was largely deliberate on the part of the state of TX to minimize the impact of federal energy regulations on the TX grid. The idea being that the federal regulations devise their authority from the regulation of inters…

Wow. I hope other states who have a similar setup learn from this and take adequate measures to avoid situations like this in the future.

Re: Clearing price for supplying power to Texas grid –$31.65

#107

Post by taeric » Sun, Feb 21, 2021, 7:28 AM UTC

tzs wrote: post #94

WalterBright wrote: post #66

Earlier quoted context omitted.

I thought the gouging laws only applied when disasters are declared. The gouging laws are stupid, anyway, as they simply ensure there's no gas to buy. Everybody is worse off.

In most disasters for which gouging laws would apply, won't the gas stations still run out even without such laws? The gas stations usually run out because the disaster stops transportation into the disaster area so the gas stations can't get resupplied.

This is an argument that feels right. However, you are just shifting first in, for biggest wallet.

In large, I confess I am ok with that shift. But it really doesn't help more people. Or more at risk people.

Re: Clearing price for supplying power to Texas grid –$31.65

#108

Post by m463 » Sun, Feb 21, 2021, 7:34 AM UTC

JumpCrisscross wrote: post #46

This is the market screaming for energy storage. If large negative-price swings, on account of higher power variability, become commonplace it could very elegantly pay for storage. It would also let storage be compared, apples to apples, dollar to dollar, with base load power supplies.

I agree. When oil went negative, it was because there was nowhere to put it.

Re: Clearing price for supplying power to Texas grid –$31.65

#109

Post by sschueller » Sun, Feb 21, 2021, 7:41 AM UTC

bdonlan wrote: post #19

spacemanmatt wrote: post #8

Earlier quoted context omitted.

I believe that is an accurate description of disincentivizing oversupply. I hate ERCOT.

Unfortunately, storage of electricity is quite difficult; supply and demand therefore need to be balanced at all times. An oversupply (ie, overvoltage or excessive frequency) will damage equipment, so prices go negative to encourage those plants which can go offline quickly to do so; generation stations which take longer to shut down or start up, on the other hand, tend to stay running.

It's not if you use hydro power. They can have their supply lakes filled with pumps when there is over generation.

Additionaly a hydro plant can go from zero to max power production with in seconds.

Re: Clearing price for supplying power to Texas grid –$31.65

#110

Post by thinkloop » Sun, Feb 21, 2021, 7:43 AM UTC

kortilla wrote: post #86

josephg wrote: post #49

Earlier quoted context omitted.

Free markets seem to do a bad job with resiliency. Redundancies, winterisation, warehousing N95 masks just in case, etc is treated as inefficiency by a free market and eliminated. These aren’t externalities - is there an economics name for this? I’m sure it’s been noticed before.

Free markets do account for huge shortages, but we’ve eliminated the motivation for actors to do something about it with anti price-gouging regulations. There would be tons of stockpiles if businesses could appropriately upcharge when there was mass panic buying. Instead we stupidly lock prices, which wipes out most of the point of paying extra storage costs compared to a just in time competitor. The problem is we’ve…

There is no way it would be effecient to perpetually store 1000X your regular demand just to upsell in an unprecendented crisis, regardless of price gouging policies.