Electricity Pricing in Crisis Situations
27 February 2021
Texas just had a major problem with electricity supply caused by an extreme weather event and the fact that their grid was not connected to the rest of the USA to allow them to import power to the state. But Australia has a similar market-driven model where generators bid to put electricity into the grid. The price is set by the last bid to get to the quantity that is needed. This allows the gaming of prices by collusion between generators, which is probably the reason that prices have remained high- the competition that is supposed to lower prices is ‘imperfect’. Interestingly, no one gives this as a reason.
Most Australian retailers buy power, average the wholesale prices and sell to the consumer. Wholesale prices on the National Energy Market vary widely and can be watched for free in real time on apps such as NEM Data.
When a massive weather event occurred in Texas the wholesale price went through the roof. Would our bills be similarly affected? Possibly, as when South Australia had a similar problem their connection to the national grid was blown down.
A few electricity retailers in Australia merely sell at the wholesale price and take a fixed supply fee, which is cheaper unless huge price spikes come due to unforeseen events.
One aspect that has been neglected in public discussion in Australia is Demand Management, which involves cutting demand, rather than increasing supply. It would be possible, for example, to have customers notified that prices were very high and have them shut off unnecessary power, such as air-conditioning. This could be refined to be more selective, turning off the cooler but not the fan intermittently. It could even be done remotely and houses could have circuits that could be cut off if power was short, and circuits that were considered vital, like lights and frigs.
It would be possible to get an SMS us to tell us that power was very expensive and to turn off whatever was possible. This assumes the customer is on wholesale prices- otherwise it is the retailer’s problem. But the issue and some technological and behavioural options need to be discussed.
In the meantime I am on wholesale pricing and am writing to my retailer about SMSs.