It’s cheaper because we pass the risk on to you
shkspr.mobi
shkspr.mobi
I'm not on a wholesale rate plan, but if I was, you can bet your sweet ass that I would be A. monitoring the wholesale price B. switching off my main breaker the moment the price went above $X.
As such, don't really agree with the conclusion of the article. We mandate having car insurance not because we care if you can't afford to fix your car when you wreck it, but rather because if you crash into someone else we don't want you to dodge paying for what you've done to them.
Electricity is entirely a you thing. Your neighbor/society doesn't get hurt if you use Griddy with uncapped rates, only you do (and as pointed out above, you can avoid this if you're smart). Yes people will get burned, but I don't want to live in a society that tries to prevent people from ever making personal mistakes – mostly because such attempts usually don't succeed, while also curtailing my freedom in the process. And just to reiterate, this doesn't apply if there are negative externalities that affect others.
Unfortunately, we can't really count on people being at all competent like that.
If I was in Texas this past week, you can bet that I would have monitored my lack of heat and shut off my water and drained the pipes in my house.
Instead, there is an astronomical amount of water damage from burst pipes now.
People who haven't considered or dealt with the worst case scenario will always be caught off guard. That's just the nature of it.
Unless the price is available through another method like radio, from the meter, or over the powerline, be sure to be using a satellite link in case mobile data and local internet goes out before the power does. And have some type of contingency if their website goes down for maintenance or due to a disaster.
A was meant to be done by "smart" meters but they forgot to package it in a way which let us do demand reduction, or even be told. It was packaged to the suppliers benefit, not the consumer (here in OZ)
B you do know, this carries risks? Sure, not enormous ones, but frequent interruption of supply is not inherently safer than turning things off at the wall, nicely. CBs are good, but everything mechanical has a lifetime. The more you use it, the shorter it is, sometimes. Especially for mechanical things, when they're physically cold.
Third party insurance exists.
Some people are asking for the state to bail out people with these bills now. In other words, people liked the ‘freedom’ to benefit from cheaper wholesale prices, but when the market moves against them, the downside risk will be socialised.
And yes, that’s the point. I don’t want the state to socialize losses, and I don’t want them to say I can’t buy electricity from a wholesaler. People should live with their decisions.
https://www.theguardian.com/us-news/2021/feb/21/texas-republ...
The Guardian is one of the worst places to look for any genuine insight into US policy.
Electricity market is regulated partly because providing a reliable electricity supply is seen as important for society, maybe more so than the importance of giving consumers the freedom to gamble on the electricity markets.
I can see how this is going to be the taxpayer's problem - but that isn't because there is anything wrong with consumers taking on risk. The problem is corruption in the political process of wealthy politicians are friends with wealthy CEOs and big shareholders. Then magically bailouts happen with near bipartisan support.
The galling part of it is that there probably is a political consensus on the ground against bailing out companies that make bad decisions. I think at least the socialists and free marketeers would agree that if the owners make economically ruinous decisions they shouldn't stay on as owners.
The story here would be different if the driving force behind the increase in electricity cost was an increase in the cost of inputs (such as the cost of gas). This did happen a bit at the margins (spinning up expensive to operate generators), but for the most part, generators went offline not because of the expense of staying online; but rather because they were incapable of operating. The decisions about electricity supply during this emergency were not made during the emergency; but during the decade prior, when the equitment was not outfitted to prepare for such an emergency.
In theory, allowing high spot prices provides a free market incentive to make such preparations. However, in practice, the free market is simply not good at dealing with the long tail events like this.
Left to its own devices, it prefers the safe options of sitting out the potential long-tail event over the risky option of investing in preparing for a long tail event that may never come.
This is why the mechanism for preparing for this type of event, should be regulation.
Even your own health and well-being is not entirely you. Whatever you do to yourself has ripple effects on society. You go without health insurance, but when you fall ill or die prematurely, who takes care of your dependants?
Or more to the point, you sign up for Griddy and turn off your main breaker because the price went too high, then your pipes freeze and damage neighbouring properties or even worse, you freeze to death or die from carbon monoxide poisoning.
No man is truly an island.
Also worth pointing out that dying is still a "you" problem. Obviously I'd prefer it if people didn't die, but again, if you're actually dying the solution is to switch your power back on and only use it for essentials and take the hit. Debts can be paid off, and should be. Again, I was straight up without power for > 72hrs. I would've actually enjoyed the choice to pay an insane rate for some electricity rather than not having a choice at all.
Did other places have outages? Yeah. They also had more severe weather. With fewer deaths, it seems.
In the framing you have given, this should be fine. The amount of damage you have personally caused can easily be seen as a wholesale price.
My assertion is that either the cost of cars and driving would have to go up to actually price in the cost of failure. Cars would have to be seriously reworked such that they were much safer. Or you would find that insurance is a great idea.
To be clear, this isn't that far fetched. I live somewhere that lets me bike more. Unless I'm ignorant of some laws, I do not have to have insurance.
I’m not talking about bleeding heart stuff. This is the same as like in Latin America where the poor are literally allowed to die. Guess what? They get guns, knives, whatever and kill in much higher numbers.
Are you talking about zombies?
How would this happen? Everyone's breakers would be popping at the same time. This would cause a massive decrease in demand until the price crashes back to sustainable levels. People can then turn their breakers on and only use the electricity for essentials, like keeping your pipes warm and preventing you from freezing to death.
People freezing to death because they can't afford to heat has externalized cost at a certain scale. Even if you just want to look at the economic effects.
congrats on not dying, however others were not so lucky, and I fear these number of dead will grow in the coming days.
You can't conflate "omg people are dying" with "omg the prices were too high". The two problems are literally mutually exclusive.
If the temp is 0, a family with a baby doesn’t have that right polar camping gear, then one of two things will happen
* someone will take them in * they will end up in the ER when their child gets cold
A good percentage of people will not have local friends with the means to help them. Now it’s a society problem.
Still don’t want it to be a society problem? Pass a law banning those seeking warmth from asking for help? How many people do you think will lay down and quietly die? Very few. Most will murder before watching their child die.
Your proposal could address the responsibility of the owners of the electric grid in causing the outages in the first place.
On that note, a "smart" breaker that could do that monitoring for you and start cutting non-essential (and eventually "essential") circuits as prices exceed user-configured thresholds (perhaps integrated with a household UPS) could probably sell like gangbusters in places like Texas.
I think this is only possible because there is lots of regulation on electricity providers in Australia.
The premise of the article is correct.
Risk is cost. A company that can manage their risks better face less costs and ones that can eliminate the risk altogether (for example by passing it to their customers) fares even better.
Normally, companies like Griddy buy financial products (which I help build) that let them insulate themselves from some portion of that risk. These products are not sold for free, obviously.
When you buy an insurance it is understood that the insurance company is going to make some money on it. You buy insurance because you want to insulate yourself from an event that could potentially cripple your finance, living standards or future prospects for a long time.
By passing the risk to their clients, Griddy did not have to pay for any kind of insurance or hedge against market volatility in any way.
Unfortunately, people who bought this were not savvy enough to understand they need to insure themselves in some way and that this is not really worth it.
It does not help that it is apparently not that easy to change where you buy energy when nobody wants new clients and would gladly get rid of the ones they already have.
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I am not from US and I also don't know energy markets, but my understanding is that these kinds of markets are going to be volatile because of basic fact that energy demand is quite inelastic.
Normally, when the demand is elastic and the price goes up, some people would decide to stop buying thus keeping some kind equilibrium between supply and demand at some sensible price.
Unfortunately, most people will not decide to stop heating their houses when demand is not able to meet supply and this means energy market can behave in an extremely volatile way.
What I wonder is where are businesses, industry, factories that I think should normally consume most of the energy and should be first to switch off when supply falls.
People wanted energy to be deregulated? I personally think basic necessities that people absolutely need to have should be regulated to some degree. You don't want to wake up and find a medicine you need to sustain your life just went 10000 percent up because of some random market event or that your hospital suddenly can't buy energy because it is too expensive.
Some systems (like home budgets or small businesses) are built on a very tight margins and are really sensitive to that kind of volatility. Maybe large companies can absorb large swings in prices but normal people should not be living in fear that their livelihood is going to be taken from them for some random market swing or AI decision.
As is you’re effectively doing commodity trading with fixed demand and no safety net.
Or just cut your power off after you've racked up a high enough bill? This seems like it's easy to do given that there are remote controlled switches for this exact reason (for load shedding, I believe).
In a simplified universe where everything is as described in an entry-level economics textbook, this variable pricing system saved everyone. People with health conditions or particularly valuable homes were willing to pay exorbitant electricity rates, everyone else turned off their power, and they all lived happily ever after.
Real life, of course, is more complicated.
For example. There is a pretty basic assumption without which markets cannot function. That is the assumption that people actually know and compare prices instead of just buying things where they don't even know how much it costs. People don't spend their lives staring at wholesale electricity prices all day. What's needed are electronic devices that do this busywork for us. If each outlet had its own price sensitive breaker we could just set up some price caps on each outlet and disable nonessential devices or turn down the thermostat.
Furthermore, the retail energy providers offering these wholesale pricing schemes are just over-the-top resellers of energy, they don't own or operate any part of the electricity network. They can't instantaneously turn off anything.
Not really, what I'm talking about are devices that turn off high load devices when system load is too high, so the load can be reduced[1]. While it might be true that these devices aren't activated on a per-residence level, the general effect of raising prices, and people's electricity getting cut off in response is the same. The only difference is that you're shutting off power to people who are willing to pay for it the least, rather than the whole neighborhood.
The technical answer is that demand response resources are considered dispatchable or interruptible load. Load shedding is the dropping of "firm" or non-dispatchable load. Typically, load shedding due to energy inadequacy only occurs after all demand response resources have already been called in. It's not one or the other, it's always both in tandem.
The practical answer is that during extreme weather, there are never enough people willing to voluntarily freeze. The demand for heat when it's below freezing in a state where homes aren't insulated and people don't own winter clothing is relatively inelastic.
Not exactly. While it's true that people are willing to pay infinite dollars to not freeze (aka stay alive), there are a variety of ways to do it that don't involve using electricity. eg. starting a fire (risky I know), or cohabiting with relatives.
https://www.griddy.com/post/griddy-update-why-energy-prices-...
http://www.puc.texas.gov/51617WinterERCOTOrder.pdf
Retail customers weren't expected to be directly affected by wholesale pricing of energy, but when a provider passes through the wholesale price directly that goes out the window.
Pooling resources for power costs, or for health care, or any other purpose, serves the same purpose: survival via reduction of risk.
I can all but guarantee you that no one who signed up for Griddy ever thought they'd get a bill like this. I can also guarantee you that there were Texas energy market experts out there who knew something like this was an eventuality. And that is why "Griddy" should never have existed.
[0]: https://www.griddy.com/post/griddy-update-why-energy-prices-...
Griddy is advocating for having their cake and eating it too here, I think.
They relied on conditions staying static when the rules say things can change a lot in an emergency.
ERCOT operates a power-only market, unlike most grid operators. No producers get paid "for capacity" (for agreeing to be ready to provide power, even if they're not currently doing so). To provide a motivation for producers to have excess capacity, ERCOT allows the wholesale price of electricity to rise as high as $9000/MWh in shortage conditions.
During the past week when massive amounts of supply went offline ERCOT forced the downstream utilities to disconnect customers (shed load) to avoid bringing down the entire grid. This is what the "EEA 3" in Griddy's graphic means. After vast swathes of Texas were disconnected from the grid and prevented from buying power at any price, the market clearing price for those remaining on the grid was around $1200/MWh.
The Texas PUC ordered ERCOT to raise the price to the cap of $9000/MWh to accurately reflect that demand was vastly exceeding supply at that moment.
So was it an intervention? Yes. But the intervention was there to make the market function more like it was intended to. Shedding load from the grid was also (an earlier) intervention in the market. It's not really possible to operate a completely "free market" in electricity because of physical and moral constraints (are you really going to turn off electricity to the water treatment plant before some guy's mansion?) as we're seeing.
The algorithm just sees load < available power and sets the price.
This means that as the load continued to shed, wholesale price would have continued to plummet, which would have caused more generation to go offline (as there's no demand for it, and price per kWh is dropping), which is the exact opposite of what was required to stabilize the grid.
Generation needed to be brought back online, and wholesale customers still connected to the grid (think large industry) should have pulled their load off the grid to restore capacity for the retail consumer.
But something very risky happened, and the people on the downside of that risk are not in good positions to weather the downside.
Whether that is deserving of regulation is a separate issue, but people set themselves up for a disaster on the basis that the downside would not hit them. Pow! Now they are in a world of hurt.
You may be right- it's very hard to imagine that normal people really wanted to be exposed to that kind of downside.
But also it reminds me of the kind of articles you see from time to time where someone bought a cut-rate airfare, and then got bumped or had some other inconvenient change and was upset that they had no recourse. But of course the whole reason that fare existed was because the buyer was agreeing they could be bumped.
So if the options are fixed rate power that is cut when the utility doesnt want to pay the spot price, or wholesale power that stays on but exposes the buyer to the spot price and is usually cheaper than the fixed rate, I start to imagine that there is a market for that. And that like the airfares, people are happy to take the upside but cry not fair when stuck with the downside.
But not everything is like that. In particular household utilities aren't elastic things: people need them in a way they don't need to gamble. So the government needs to be regulating this on our behalf, because it's not reasonable to assume everyone knows the weatherproofing state of the Texas power grid.
That doesn't mean that no consumer ability to exploit spot power should exist. I mean, there are similar products envisioned like "charge overnight" for EVs that seem safe.
But the idea that somehow consumers were going to be so sophisticated as to manage their risk to tolerate a $10k electric bill is just bananas.
I'm not sure if anyone has done the math on what kinda timescale you are looking at for return on investment with a 100kWh battery, but given that most electricity grids in the world have e.g. different day and night rates, there is an obviously untapped market for arbitrage.
> "I'm not sure if anyone has done the math on what kinda timescale you are looking at for return on investment with a 100kWh battery"
A long one. 100kWh will cost you maybe $70,000 (e.g. 10x of these https://www.amazon.com/48-VDC-Kwh-Battery-Pack/dp/B079348MM1 ) (If it's not LiIon, but is lead-acid to be cheaper, you won't want to be using much more than 50% of it before it causes problems). At $1/kWh from the mains, about 8 years of mains electricity to buy it. At $0.25/kWh, 32 years.
But if there was an arbitrage opportunity, wouldn't a company be already on top of it[1]? I'd imagine that a company would have greater economies of scale to operate such a system compared to a home user. My guess is that there aren't many people who have solar panels/wind mills, 100kWh batteries, and aren't connected to the grid, because it's much more cost-effective to use the grid as your battery (that is, sell into it when you're generating power, and buying from it when you're not).
[1] insert joke about a pair of economists finding a $20 bill on the sidewalk
If you spend 70k on a battery and then think you're getting one over on the power company by giving them 100 kWh of storage for the price of the cost difference on their daytime and nighttime rate, the power company is laughing all the way to the bank.
TL;DR they say the Public Utility Commission of Texas has control of prices and is forcing them to be extremely high even though there is no reason for them to be based on supply and demand.
clearly you missed the story from yesterday: Clearing price for supplying power to Texas grid –$31.65 (ercot.com) https://news.ycombinator.com/item?id=26207827
http://www.puc.texas.gov/51617WinterERCOTOrder.pdf
Previously consumers were getting cut off because large industry was still getting low wholesale power and generators were not incentivized to spin up more capacity.
The PUCT makes a salient point: why was energy trading at less than the maximum if we were shedding load? If demand is so high that the generators can't keep up, then pricing would be expected to follow. PUCT directed ERCOT to ensure that their pricing is commensurate with the scarcity on the market.
The theory is as such: raising prices during a crisis does two things. First it encourages more production, since anyone producing (or more likely, moving) shortage goods into the affected area will be compensated. Secondly it discourages non essential consumption, as everyone cuts back to the bare minimum. This is the basic theory of prices driving resource allocation (one of the cornerstones of capitalism) being applied to a crisis and the resulting resource shortages.
The issue here in Texas is that this didn’t happen. In theory producers should’ve run extra capacity to take advantage of the crisis, which should end it. Instead they ran the bare minimum, didn’t winterize, and pocketed the profits. It was also impossible to move extra energy in, both due to diminished excess in nearby states, and a lack of robust cross-grid connections. Secondly a lot of this demand isn’t elastic. If you’re counting on an electric heat pump to warm your home, then you can’t cut consumption during a crisis; you’ll freeze to death. This means that the rising prices don’t cause people to curtail consumption, because nobody will willingly freeze themselves and their water pipes given the choice.
And before the whole “who could have predicted this once in a century storm”, this exact issue came up in 2011, and the Federal Energy Regulatory Committee produced a huge report warning about all of the things that ended up knocking the grid offline this year.
For an unsophisticated observer, this is a proof that free market doesn't actually work. So something better should be used, and those trumpeting raw competition are either ignorant or willingly lie.
But to the specifics you're wrong. It's perfectly possible to build a market system in which providers aren't incentivized to do stupid things like this.
It's very Texan to have a situation in which there's a market that will unavoidably cause tremendous problems (but makes the wealthy even wealthier) and then it is somehow not only permitted but seemingly popular to seek to expose ordinary people directly to that market. The right thing to happen is that this arrangement is banned, and the politicians who allowed or worse encouraged it are censured. But I have no confidence that's anywhere close to what will actually happen.
A market system, yes.
But not a "free market" system in the sense that most libertarian-leaning people mean, where the government just stands aside and lets businesses do as they will.
In order for a market system to approximate the ideal free market in a situation like this, there needs to be a boatload of different kinds of regulation on it. Externalities would need to be priced in, all possible costs would need to be clearly disclosed, and many varieties of corner-cutting would have to be prohibited.
Even then, it is, in fact, absolutely impossible for electricity to be a genuine free market, just as it is with health care: Both are absolutely essential and time-critical, at least at certain times, which makes shopping around impossible (for health care because you can't shop around while unconscious, even if you did have a fancy phone app to make it nearly instantaneous, and for electricity because when a massive cold snap comes and your choices are "pay for electricity or freeze to death", it's not possible to switch electricity providers on short notice).
There's no way to make that judgement until we see some actual metrics instead of anecdotes. It's possible this could have been worse without increased prices.