Works great until one day your energy goes up in price by a factor of 10,000.
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.