So if I offer my services providing electricity through a bicycle transformer for the cheap cheap price of $1000 per kWh does that mean everyone has to pay that price.
If you were offering power at $1000/kWh, you would simply lose the auction.
Imagine the scenario where Alice, Bob, Charlie, and Daniel are each selling power at $1/kWh, $2, $3, and $4 respectively. We need 30 kW of power.
Alice bids 10 kW at $1/kWh. We draw power from her, but we still need 20 kW
Bob bids 15 kW at $2/kWh. We draw power from him, but we still need 5 kW.
Charlie bids 30 kW at $3/kWh. We draw 5 kW from him. We don't need any more power, so Charlie has set the price at $3/kWh
Over the next hour, Alice gets $30, Bob gets $45, and Charlie gets $15. Daniel gets nothing, because he was out bid.
1. Pay someone else to deliver your electricity.
2. Pay the grid operator to deliver your electricity through their reserves. This includes a fine.
What is the market pressure here? Suddenly a ton of new capacity in solar, gas, etc, will come online and drive that price down because there will be much more capacity before you reach the point of $1000/kwh purchases.
The alternative is that people get paid at cost of production, which if you think about it is less fair. Why should a gas turbine get paid $67/kwh and a solar cell or battery get paid less? It also means that the market incentivizes more cheaper energy as a rule, because they take profit.
Would you go to the gas station charging $2 above market price just because their costs are higher to produce the gas?
As I understand it (and even if I’m broadly right I’m greatly simplifying) there’s an auction system and if demand is X kilowatts, they line up all the bids to supply in cost order and draw a line at X kilowatts. All successful bidders receive the price bid by the highest successful bidder.
There are rare times in this kind of market where the price does go very high (though not to $1000 per kwh), and those brief periods push average prices up substantially.
In markets where batteries are going gangbusters, they are squashing many of these peaks and thus reducing average prices paid by consumers (though not as much as you’d hope because the majority of retail electricity costs are distribution rather than generation).