wouldn't have mattered
due to the screwed up energy pricing system, if there's a single watt of electricity in the grid produced by burning gas, we pay for the entire grid output as if it was gas
due to the screwed up energy pricing system, if there's a single watt of electricity in the grid produced by burning gas, we pay for the entire grid output as if it was gas
Such a behavior only happens on artificial markets that have been designed for that purpose to match an ideological vision of how an “ideal market” should behave.
Turns out the “ideal market” is a dystopia instead of the intended utopia.
Why? This market is pretty much ideal and sets the right incentives. You have little to no information asymmetry, you need to strike a price that clears the market because you must balance production and demand.
Why should sellers of renewable energy be forced to sell at their marginal cost when they are selling a commodity where somebody else gets triple the price?
Says whom?
> Why should sellers of renewable energy be forced to sell at their marginal cost when they are selling a commodity where somebody else gets triple the price?
It doesn't make sense to force them to sell at their marginal cost either (which is much less than their operating cost, consisting mostly of fixed costs).
In fact, in real life, for most good or services the marginal price is decreasing with volume (or even zero for most of the supply curve with occasional spikes), pricing at the marginal cost means you're pricing way below the average cost and will drive all businesses to their doom.
In the electricity world, this kind of pricing only makes sense for electricity produced from fossil fuel as the marginal cost represents most the underlying cost, but it makes zero sense for renewable or nuclear where the cost is swallowed upfront and close to zero afterwards.
I do and given the practice is pretty common, it seems like most people would.
To be clear, the incentive is: you make more money when you can produce energy cheaper than everybody else.
> In the electricity world, this kind of pricing only makes sense for electricity produced from fossil fuel as the marginal cost represents most the underlying cost, but it makes zero sense for renewable or nuclear where the cost is swallowed upfront and close to zero afterwards.
Are capital costs not real underlying costs? If I borrow money from a bank I have to return that money plus interest. I would argue that this is a very real cost. Also, renewables do require maintenance. That is not as expensive as the ongoing cost of burning fossil fuel, but it’s still a cost
Definitely not “most people”, only the small number of economists and politicians that designed these scheme.
> To be clear, the incentive is: you make more money when you can produce energy cheaper than everybody else.
Which is a bad incentive for an electricity market, because as I said above, “energy” is free basically free for both renewable and nuclear. What ain't free is “installed power”. And what customers need is “available power”. If you design a virtual market around things that have nothing to do with the underlying physical reality of the actual value being produced, it's simply never going to work well.
> Are capital costs not real underlying costs? If I borrow money from a bank I have to return that money plus interest. I would argue that this is a very real cost.
It is a “real cost” indeed, but it cost you the same whether you produce electricity or not, it's a fixed, upfront, cost, not a marginal cost.
> Also, renewables do require maintenance. That is not as expensive as the ongoing cost of burning fossil fuel, but it’s still a cost
Most of maintenance aren't linked to how much electricity you've produced (for solar, for instance, it only depends on time, and cost you the exact same amount whether or not you've produced any electricity), so it's again not a marginal cost but a fixed one.
And let say you restrict yourself to the maintenance that depends on electricity production (for nuclear, refueling maintenance is like that) you'll end up with a marginal cost that is very low compared to your average cost, and if you price at marginal cost then you're going to go bankrupt.
For illustration say operating your 1GW solar plant cost 200 million a year in fixed costs (including maintenance and the cost of capital) and then it costs 0 to produce a MWh as long as the sun is up. If you price it at marginal cost, then you'll never make any money, so the only hope you have is that in a long enough period the market prices will be high due to the marginal cost of fossil fuel plants, in a way that it ends up covering your fixed costs. But, as a plant owner/manager, you have absolutely no control over that, you aren't being incentivized into doing anything.
Typically what existed in France and other places of Europe before we decided to “liberalize the energy market”.
There isn’t an ideal free market in electricity generation.
In commodities market, the strike price is between the lowest price seller and the highest buyer.
In the goods market, individual buyers buy depending on their elasticity of demand unless the good has inelastic demand (rare).
Neither matches what you seem to say.
The lowest seller price is the highest demanded price among all the sellers. All the sellers bar one would typically be willing to sell for a slightly lower price. As it is said; prices are set on the margins.
Imagine that every seller has a secret price they are willing to sell for and that is some statistical distribution. The market price will be the highest price in that distribution that actually gets sold. Most sellers aren't selling for their secretly acceptable price, but for a higher price determined by the seller with the highest demands. The distribution, if it is ever discovered, becomes the supply curve.
Different energy sources contribute unequally to that second important factor - the stability of the grid - and that has to be factored in somehow. Nuclear, gas, hydro-electric storage and buying from abroad provide that stability in the UK.
How it's done - I've no idea - but it's not just a question of units of electricity.
One way is to bring in more surge pricing however people like the predictability of stable prices.
Your renewable energy is worth 0 if it can't meet that need. No other power supply anywhere works on the principle of "yay maybe!". It's not a fucking game, it's our capacity to heat, to operate industrial processes that are equally worthless if interrupted. I've been involved in ordering steel. The UK-spec was uncompetitive if free, because of the unpredictability in delivery, directly downstream from the unpredictability in power. THERE IS A WAR ON.