Comment by merely-unlikely | Hacker News Reader

Comment by merely-unlikely | Hacker News Reader

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merely-unlikely

> Price is a function of whatever price the seller sets.

Only if customers are willing to buy at that price. Which is only true now because there are no cheaper competitors to turn to, which in turn is because the entire system is operating at capacity.

Over time the high prices incentivizes bringing more power generation and transport online, which is exactly what we are seeing - new/reopened nuclear, coal, and nat gas plants are all planned or coming online across Europe and imports have spiked from places like the US. No one likes high prices but it does incentivize building more capacity that might lose money when prices are low, but make up for that when prices are high. This process doesn't happen over night but sanctions + war (roughly) did. Europe was lulled into complacency by consistent and cheap Russian gas for years.

Also, don't overlook those transport costs. Networks across all energy types are severely constrained and underinvested in. Doesn't matter how cheap you can produce energy if you can't get it to your customers cheaply.

> Only if customers are willing to buy at that price. Which is only true now because there are no cheaper competitors to turn to, which in turn is because the entire system is operating at capacity.

In other words, the price is the marginal price: at the very edge. What is the highest price consumers want to pay for X amount of electricity. You should split it up: say price of electricity is 5$. That means:

Electricity produced at 1$: sells for 5$

Electricity produced at 2$: sells for 5$

Electricity produced at 3$: sells for 5$

Electricity produced at 4$: sells for 5$

Electricity produced at 5$: sells for 5$

Electricity produced at 6$: does not sell, plants get paused

Which is exactly how I would expect it to work. Now if producers expect prices to remain high, or for there to be repeated spikes in price, I would expect the $1, $2, $3, and maybe $4 producers to invest in additional production or storage over time to capture additional marketshare and thereby profits. Of course the "over time" part is important since that process can't happen overnight and is constrained by labor and components.

There is some context missing there: the amount of power buyers need. So a simplified example:

Buyers are willing to pay $5 to secure 100GW of power. Sellers are: 80GW Solar at $3 and 20GW Coal at $5.

At 100GW the price is $5 because it's the price that will secure 100GW. If buyers only needed 80GW the price would be $3.

There is only one market price and it's the price that gets the required quantity of power (as you say).

not all plants can be paused quickly...

Sometimes that means: Electricity produced at x$: sells for -5$ (I pay you to use it)

Yea there’s a lot of forecasting, inefficiencies, and other distortions involved. Energy supply chains aren’t easy

Yes, of course there are no cheaper alternatives to turn to. The European electricity market is dominated by a small number of giants which essentially have no competition and does not compete with each other. It's not different from the housing market. Housing isn't freakishly expensive because it has become too expensive to build houses. It is because those who control the market have figured out how to screw over people who need a home to live in (which is almost everyone).

It was the European Commission that designed the integrated electricity market because it was believed that a free market would guarantee low electricity prices for everyone. It seems very naive to believe that this system will function better in the future. For the energy giants it is more profitable to limit supply and jack up prices than to build more capacity.

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