That is a naive way of looking at how the electricity market currently functions and is regulated.
Due to how the pricing is regulated in the market there is a perverse incentive for electricity producers to keep expensive gas plants running to increase profits from their renewable sources, as they can ask the highest production price for all the electricity produced regardless of the actual source.
This regulation was originally intended to increase profits of producers with a small base of renewables and incentivize them into investing in more renewables and I guess you can say that worked in the early 2000. But now that we have a substantial install base of renewables, it highly disincentivizes producers to retire their remaining expensive gas plants and invest in better transmission and energy storage.
Due to how the pricing is regulated in the market there is a perverse incentive for electricity producers to keep expensive gas plants running
You’re probably talking about the day-ahead market (1).
The price per kWh is indeed where bids and asks meet.
Only a small portion of electricity is traded on that market. It’s a marginal factor.
Most is traded OTC, longer term. There’s also the intraday-market. Finally, there’s the balancing price.
That is a naive way of looking at how the electricity market currently functions and is regulated.
I’ve worked as energy trader.
it highly disincentivizes producers to retire their remaining expensive gas plants and invest in better transmission and energy storage.
It is a fundamental problem of technology. Here in Belgium the government started subsidising gas plants, passing the costs on to end-consumers, as they’re necessary for balancing the grid, but unprofitable to run. (1)
As an analogy: it’s like buying a fleet of sailboats. As long as there’s a need for cargo to travel regardless of weather, you’ll still also be maintaining a fleet of motorized boats.
That is a naive way of looking at how the electricity market currently functions and is regulated.
Due to how the pricing is regulated in the market there is a perverse incentive for electricity producers to keep expensive gas plants running to increase profits from their renewable sources, as they can ask the highest production price for all the electricity produced regardless of the actual source.
This regulation was originally intended to increase profits of producers with a small base of renewables and incentivize them into investing in more renewables and I guess you can say that worked in the early 2000. But now that we have a substantial install base of renewables, it highly disincentivizes producers to retire their remaining expensive gas plants and invest in better transmission and energy storage.
You’re probably talking about the day-ahead market (1). The price per kWh is indeed where bids and asks meet.
Only a small portion of electricity is traded on that market. It’s a marginal factor.
Most is traded OTC, longer term. There’s also the intraday-market. Finally, there’s the balancing price.
I’ve worked as energy trader.
It is a fundamental problem of technology. Here in Belgium the government started subsidising gas plants, passing the costs on to end-consumers, as they’re necessary for balancing the grid, but unprofitable to run. (1)
As an analogy: it’s like buying a fleet of sailboats. As long as there’s a need for cargo to travel regardless of weather, you’ll still also be maintaining a fleet of motorized boats.
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
And yes, looking at the gas plants alone they are unprofitable to run, but they allow windfall profits from renewables if they run.
You’re incorrect in both your understanding of energy markets, and my paychecks.
Again, you’re basing this on the day-ahead market. A marginal market in terms of traded power volume.