Huh, I did not know about the wholesale price issue, that's pretty bad.
It also incentivises avoiding cheap sources from dominating the market.
It also incentivises avoiding cheap sources from dominating the market.
I can see that the model does incentivise both cheaper energy sources (more over-pay leads to greate investment possibilities) and pricing honestly. If the scheme chose the cheapest X units and paid them out at their bid rates, there would be incentive to bid as close as you can to what you predict the day's cutoff would be... but it does seem likely to not achieve the best overall price.
From that article:
> The UK’s electricity market operates using a system known as “marginal pricing”. This means that all of the power plants running in each half-hour period are paid the same price, set by the final generator that has to switch on to meet demand, which is known as the “marginal” unit.
> While this is unfamiliar to many people, marginal pricing is far from unique to the UK’s electricity market. It is used in most electricity markets in Europe and around the world, as well as being widely used in commodity markets in general.
The thing that's unique about the UK is that the marginal price is almost always (98% of the time) set by the price of gas. That means when the gas price increases, the wholesale price of electricity, and hence consumer bills, increase in direct response.
Of course the situation is also made worse by the fact that gas is used directly for heating and cooking in a high proportion of British homes.