I know two ways to fix this. First, obviously, you didn't say "unrestricted". There are various ways to restrict spot pricing to alleviate these issues, e.g. guarantee each home a particular amount at a fixed rate, and overages are at spot rates. Second, the "knowledge" angle can be attacked -- if you know that's happened, you can turn down your thermostat.
I think your apartment complex example is not that realistic as it won't affect the spot price. Something more like a war will..
Raising those rates too much would just be raising rates for everyone, just so those who are rich enough to afford solar panels and batteries make more profit.
It turns out that the energy price charged by a traditional contract matches the peak price of a typical day, plus a healthy profit margin. This makes sense because most electricity is consumed when prices peak.
So switching to a time of day contract does not actually raise your effective price per kWh, at least here in Belgium. Instead, it more or less keeps the same price for peak time, while giving you access to much cheaper energy off-peak.
https://theconversation.com/whats-behind-15-000-electricity-...
They were exposed to electricity spot prices and got bit hard when they spiked during a winter event that overloaded the grid.
You pay a lower rate and allow the utilities to shut off your power during peak demand. Usually people will have two meters - a regular one at full price, and a lower priced one that's connected only to heat pumps.
It's marketed as "let us control your thermostat for lower electric rates".
Some who knew how this worked just turned off their breakers or switched to generators. Those who refused complained to the state, and then of course the rest is history.
Some people will want power to be turned off at the slightest increase in price.
Most people will tolerate a small increase in spot pricing over the normal state of affairs, but would like to be disconnected if, say, electricity more than doubles over what would be normal for that time of day.
Other people will tolerate huge increases in price-- and should be able to opt into this behavior after careful acceptance of disclosures.
Indeed, having different thresholds where demand goes away is essential for spot markets to work. Otherwise, the only change in demand is from those actively watching the spot rates (either through automation or manually). It makes sense to provide a minimal level of that automation "built into" the product.
If the price goes up 10000x there will be blackouts in any case regardless if spot pricing is used or not. Spot pricing will _reduce_ blackouts.
Having the choice is better: you can have everyone decide based on their situation what reflects what they want. Otherwise, demand doesn't go away and the choice between who uses 100% of the power they want to use and who uses 0% is left to arbitrary choice.
Obviously regulators should make sure these are very, very rare events (by requiring sufficient overprovisioning and redundancy vs. failure scenarios).
There are all kinds of market outcomes in a situation like this that we might not like (and might take actions to fix to some extent). But without a market and price mechanisms involved in allocating the scarce resource, you're going to get worse outcomes.
I don't think it's really reasonable for households to pay the raw spot pricing. Someone else (utility company? government?) should be backstopping the prices for them. Time of use pricing based on typical prices seems reasonable enough.
For large industrial consumers, sure; let them pay based on actual costs, and they'll adjust their peaks to save money, which helps even out the supply/demand, which is great.
For electricity producers, spot pricing isn't really enough either, though. There needs to be some compensation for available capacity as well as generation.
I agree that it makes sense to try to decouple solar and storage though. Storage's ability to move capacity from peak generation to other times is valuable and should be compensated, and there's no reason to tie it to generation.
On demand side, I think fixed price contracts could be allowed. It is then up to those contract providers to buy enough future contracts at lower price to generate profit. Or just ride it out and hope their math was correct.