zlacker

>>RobinL+(OP)
One thing that I find hard to understand is how the electricity prices in the UK have gone up so dramatically (blaming gas prices) when a large amount of the electricity is not generated from gas. Is the price being artificially inflated?

>>nategu+e8
Author of the article here

Electricity prices in the UK (and most other places) are set by the marginal unit, which is the most expensive unit that needs to be turned on to meet demand. All other generation for that time period gets paid the same price. The marginal unit in the UK is usually gas, hence the sensitivity to gas prices

>>archyd+3a
Is that a good idea? It doesn’t sound very sensible to price everything at the cost of the most expensive unit, why do they do that?

>>grey-a+Mp
What price do you think we should pay for the electricity?

Suppose we insist we'll pay less than the price you agree to sell for. Obviously that's not a sale, that's robbery. This problem arises even if we agree to pay everybody the average, because some suppliers didn't bid average, their bid was higher, but we still claimed their electricity, so we are stealing from them.

OK, suppose we decide we'll pay all accepted bids at their bid price regardless of the marginal unit cost. If we do this the supplier is incentivised to guess the bid we will accept, so as to collect the difference between their actual price and the price we're willing to pay. If they're very good at this, we pay exactly the same as now, but, regardless of whether they're good at it the grid is significantly destabilized by the increased uncertainty due to lack of efficient price signals.

What other ideas do you have ?