Public power organizations such as TVA, Bonneville, NPPD, etc have consistently lower wholesale prices.
The Clinton era deregulation (FERC orders 888-889, 2000, etc) and individual states forced the creation of ISOs to facilitate electricity trading by the likes of Enron, non-regulated utility subsidiaries and large financial institutions. ISOs required essentially duplication of the planning and operations functions that already existed within transmission owners (these internal utility functions remain and are essential). ISOs created a needless, expensive bureaucratic layer that is paid for by consumers. Transmission expansion requires multiple layers of study and decision-making. Costs are socialized among all ratepayers, even if those assets don't benefit customers in a regulatory jurisdiction (eg, the Central Maine Power corridor to supply Boston).
The transmission planning and operations engineers I knew were adamant that it was possible for traders to game the markets. Information assymetry is real.
Lastly, electric utilities still remain monopolies, no matter how much lipstick is put of the deregulation pig. Regulated, vertically integrated utilities worked extremely well. The model wasn't broken, but it was smashed to facilitate greed.
If deregulation was a panacea, there wouldn't be 35% increases in wholesale prices. The invisible hand of markets would have magically built necessary facilities. When hundreds of billions of trades flow through the system it should not be surprising that some entities are constantly vacuuming up nickels and pennies.
Do you recall what happened in the California markets in late 2000 and early 2001? There have been plenty of other incidents of price spikes.
Brian noted flat wholesale prices prior to 2020... the peak loads of the mid-2000s were not exceeded until the 2020s. That is an artifact of deindustrialization and excess capacity, which no longer exists.
I personally believe that the industry and traders have perverse incentives with congestionand limited supply that benefit them hugely.
Brian says “… I don’t understand electricity markets well enough to say for sure.” Welcome to the club; I’m not sure anyone does. It’s unbelievable how complex electricity regulation and “markets” are. For a taste of this mess, read “Shorting the Grid” by Meredith Angwin. It’s just one band aid after another.
Her subtitle is “The hidden fragility of our electric grid”. She believes that we need more generation with onsite fuel storage such as coal and nuclear. Here in Texas we certainly paid for that lack of storage when natural gas delivery failed during winter storm Uri. Unbelievably, natural gas compressor stations had been converted from natural gas powered engines (using pipeline gas) to electric motors. Talk about stupid! All in the name of climate change I guess.
Is there any incentive in the system to build expanded transmission lines? I don't quite understand who is responsible for building these lines and who (if anyone) would see their profits increase if those lines get built.
Deregulation of single supplier monopoly markets is inane.
a. There is no competition at the consumer user level for changing your electricity supplier
b. decades of having electricity as a regulated monopoly had low consumer prices and a strong infrastructure investment
c. Private Equity, Private ownership hate 10 and 20 year returns.
Thus, it is business lunacy to separate
1. long term infrastructure from
2. short term service
Service profit is what pays for long term capex like transmission, energy generation. No rational business separates them.
Imagine Ford being two companies. A car selling company owning all dealers, no franchises, and an assembly plant company owning all hard manufacturing and assembly assets; and a Design and Engineering company that determines and sells the new model designs.
Backward integration makes enormous business sense for sustainable businesses. At least back to when there are multiple basic suppliers. Example is owning gas and oil electric generators and all the transmission and power lines feom them to your home. But these companies didn't need to own oil and gas production.
"...solar PV needs to be large, flat areas of land, which will tend to drive it away from population centers to where land is cheap, increasing its reliance on transmission."
You can build PV systems at any scale. There is a huge opportunity to site PV systems on rooftops and carports and other smaller urban and suburban locations close to load. These "distributed energy resources" actually can help alleviate congestion. The downside is that these systems tend to be more expensive to build per kW than utility-scale systems. Congestion problems from PV systems have to more with the "duck curve" effect than some inherent necessitythat these systems be built far away from population centers. The solution here is batteries and markets that optimize battery operation.
Grount-mount PV systems also can built on fairly hilly land; there are many racking solutions that work fine on varying inclines (including roof top systems!).
An analysis I’ve wanted to do is looking at industrial inflation through the Covid years and comparing it to consumer prices. And then to deep dive into a couple of products that can show how “skimpflation” or product-quality declines allowed consumer prices to not go up as much through that time, but with a worse quality product.
Hedonic adjustments are only done for supposed product quality increases, not for the reverse. That’s the error that i think is important here.
I know CPI conspiracy theories are rampant, but I have a working theory that cumulative inflation through that time was close to 75% or so, which explains why so many things feel financially harder now.
Industrial inflation and electricity prices and stuff like that can’t adulterate the product so they give a more accurate picture than, say, what happened to Doritos or cheap living room furniture.
Your stats on wholesale electricity prices here support this.
You mean like Time-of-use pricing? Most utilities do offer that. Does yours not offer this? Mine offers several packages. The rate differences can be quite significant (for different times of the day). It is of course optional, but being on it saves us hundreds of dollars a year, easily. Of course, we also pay attention to it and consume more/less when ideal.
I've heard of folks in other utilities who's prices actually change in real time! Again, I'm sure that's optional.
Maybe for industry, but otherwise, I think this depends on automatic price monitoring and demand adjustment. There is so much lag between real time prices and when consumers see a bill that it’s not a tight feedback loop.
I leave with more questions than answers from this great article. We have all the data but who is optimizing the network? I imagine operators could point to half a dozen transmission lines that could be stood up and dramatically reduce prices, but what is their incentive to do that? Market entry barriers are insurmountable so you don’t need to worry about being distrusted by anyone. And given infrastructure costs I imagine it takes a very long time to turn a profit on standing up new lines. And of course consumers have next to zero ability to vote with their wallets. It feels a bit like the cargo cult version of a “market”.
Why the big delta in consumer prices in CAISO? PG&E is passing on all the insurance and infrastructure costs relating to fires to consumers, of which I am one, so that would be my guess.
I have a wealthy friend who between battery and solar is completely decoupled from PG&E. Yet he’s not permitted to be “disconnected” by law, he still has to pay PG&E every year for his unused hookup and other fees.
I am a big free markets guy but let’s be realistic here. What is the utility of price discovery and trading when the participants are legally and practically a loose aggregation of regional monopolies?
I get it’s way more complex than I could imagine and not my wheelhouse, but I look at my skyrocketing electricity bills, then look at this system, and it doesn’t seem surprising prices are going up.
EDIT: I see the other comment explaining that the trading market was essentially a financialization strategy. How very 1990s. Looks like I have some reading to do!
Siting new transmission lines can take years and at the end still fail. NIMBY very powerful with transmission and there's likely a cost-benefit gap, i.e. too little benefit to the people whose land is used or can see the new line and increasing the benefit there would outweigh the benefit to the retail customers. Generation distant from load it serves is a big problem.
"A negative loss value means that adding more electricity at a particular location will increase overall system losses, making the electricity less valuable and decreasing the overall LMP"
Shouldn't it be the other way round i.e. making electricity less valuable and thus increasing the location marginal price a buyer would have to pay, to compensate for increase in losses?
Increases are directly proportional to the investments in intermittent energy sources - wind and solar - why Calif is the highest but still not as high as Germany that has completely abandoned fossil fuels - and it’s not just electricity prices - Germany is de industrializing thus destroying GDP and their employment base
Or at least allow pipelines to be built from the Ohio and Pennsylvania gas fields to the New England states, so the silliness of shipping in LNG to New England can end. If New England senators cared about their states, they'd explain to the New York senators that everything New York likes gets voted down until New York approves construction of pipelines.
Public power organizations such as TVA, Bonneville, NPPD, etc have consistently lower wholesale prices.
The Clinton era deregulation (FERC orders 888-889, 2000, etc) and individual states forced the creation of ISOs to facilitate electricity trading by the likes of Enron, non-regulated utility subsidiaries and large financial institutions. ISOs required essentially duplication of the planning and operations functions that already existed within transmission owners (these internal utility functions remain and are essential). ISOs created a needless, expensive bureaucratic layer that is paid for by consumers. Transmission expansion requires multiple layers of study and decision-making. Costs are socialized among all ratepayers, even if those assets don't benefit customers in a regulatory jurisdiction (eg, the Central Maine Power corridor to supply Boston).
The transmission planning and operations engineers I knew were adamant that it was possible for traders to game the markets. Information assymetry is real.
Lastly, electric utilities still remain monopolies, no matter how much lipstick is put of the deregulation pig. Regulated, vertically integrated utilities worked extremely well. The model wasn't broken, but it was smashed to facilitate greed.
If deregulation was a panacea, there wouldn't be 35% increases in wholesale prices. The invisible hand of markets would have magically built necessary facilities. When hundreds of billions of trades flow through the system it should not be surprising that some entities are constantly vacuuming up nickels and pennies.
If Clinton era deregulation is the cause, then why the 20-year delay in increased wholesale prices?
Do you recall what happened in the California markets in late 2000 and early 2001? There have been plenty of other incidents of price spikes.
Brian noted flat wholesale prices prior to 2020... the peak loads of the mid-2000s were not exceeded until the 2020s. That is an artifact of deindustrialization and excess capacity, which no longer exists.
I personally believe that the industry and traders have perverse incentives with congestionand limited supply that benefit them hugely.
Brian says “… I don’t understand electricity markets well enough to say for sure.” Welcome to the club; I’m not sure anyone does. It’s unbelievable how complex electricity regulation and “markets” are. For a taste of this mess, read “Shorting the Grid” by Meredith Angwin. It’s just one band aid after another.
Her subtitle is “The hidden fragility of our electric grid”. She believes that we need more generation with onsite fuel storage such as coal and nuclear. Here in Texas we certainly paid for that lack of storage when natural gas delivery failed during winter storm Uri. Unbelievably, natural gas compressor stations had been converted from natural gas powered engines (using pipeline gas) to electric motors. Talk about stupid! All in the name of climate change I guess.
Is there any incentive in the system to build expanded transmission lines? I don't quite understand who is responsible for building these lines and who (if anyone) would see their profits increase if those lines get built.
In some cases it is private developers who get paid for their use https://www.columbiamissourian.com/news/state_news/feds-cancel-4-9-billion-loan-for-grain-belt-express-project/article_cc78645c-029b-4b4d-96b0-2b995ece1263.html
This guy, Skelly, actually ran for Congress in my district in Houston when I lived there, and he continues to be a significant player in this field
https://en.wikipedia.org/wiki/Michael_Peter_Skelly
Deregulation of single supplier monopoly markets is inane.
a. There is no competition at the consumer user level for changing your electricity supplier
b. decades of having electricity as a regulated monopoly had low consumer prices and a strong infrastructure investment
c. Private Equity, Private ownership hate 10 and 20 year returns.
Thus, it is business lunacy to separate
1. long term infrastructure from
2. short term service
Service profit is what pays for long term capex like transmission, energy generation. No rational business separates them.
Imagine Ford being two companies. A car selling company owning all dealers, no franchises, and an assembly plant company owning all hard manufacturing and assembly assets; and a Design and Engineering company that determines and sells the new model designs.
Backward integration makes enormous business sense for sustainable businesses. At least back to when there are multiple basic suppliers. Example is owning gas and oil electric generators and all the transmission and power lines feom them to your home. But these companies didn't need to own oil and gas production.
This statement is not true:
"...solar PV needs to be large, flat areas of land, which will tend to drive it away from population centers to where land is cheap, increasing its reliance on transmission."
You can build PV systems at any scale. There is a huge opportunity to site PV systems on rooftops and carports and other smaller urban and suburban locations close to load. These "distributed energy resources" actually can help alleviate congestion. The downside is that these systems tend to be more expensive to build per kW than utility-scale systems. Congestion problems from PV systems have to more with the "duck curve" effect than some inherent necessitythat these systems be built far away from population centers. The solution here is batteries and markets that optimize battery operation.
Grount-mount PV systems also can built on fairly hilly land; there are many racking solutions that work fine on varying inclines (including roof top systems!).
Reader's Digest version, please. I started to read this and my eyes glazed over.
An analysis I’ve wanted to do is looking at industrial inflation through the Covid years and comparing it to consumer prices. And then to deep dive into a couple of products that can show how “skimpflation” or product-quality declines allowed consumer prices to not go up as much through that time, but with a worse quality product.
Hedonic adjustments are only done for supposed product quality increases, not for the reverse. That’s the error that i think is important here.
I know CPI conspiracy theories are rampant, but I have a working theory that cumulative inflation through that time was close to 75% or so, which explains why so many things feel financially harder now.
Industrial inflation and electricity prices and stuff like that can’t adulterate the product so they give a more accurate picture than, say, what happened to Doritos or cheap living room furniture.
Your stats on wholesale electricity prices here support this.
At least in CA, retails prices are driven by grid hardening/modernization to reduce fire risk.
Perhaps out of topic, but passing on temporally congestion pricing to consumers would help reduce some of the costs.
You mean like Time-of-use pricing? Most utilities do offer that. Does yours not offer this? Mine offers several packages. The rate differences can be quite significant (for different times of the day). It is of course optional, but being on it saves us hundreds of dollars a year, easily. Of course, we also pay attention to it and consume more/less when ideal.
I've heard of folks in other utilities who's prices actually change in real time! Again, I'm sure that's optional.
Maybe for industry, but otherwise, I think this depends on automatic price monitoring and demand adjustment. There is so much lag between real time prices and when consumers see a bill that it’s not a tight feedback loop.
I agree in a sense, but consumers could presumably learn that baking or heating or charging the EV is more costly at some times of day than others.
Or could check the price in real time on their phone.
I leave with more questions than answers from this great article. We have all the data but who is optimizing the network? I imagine operators could point to half a dozen transmission lines that could be stood up and dramatically reduce prices, but what is their incentive to do that? Market entry barriers are insurmountable so you don’t need to worry about being distrusted by anyone. And given infrastructure costs I imagine it takes a very long time to turn a profit on standing up new lines. And of course consumers have next to zero ability to vote with their wallets. It feels a bit like the cargo cult version of a “market”.
Why the big delta in consumer prices in CAISO? PG&E is passing on all the insurance and infrastructure costs relating to fires to consumers, of which I am one, so that would be my guess.
I have a wealthy friend who between battery and solar is completely decoupled from PG&E. Yet he’s not permitted to be “disconnected” by law, he still has to pay PG&E every year for his unused hookup and other fees.
I am a big free markets guy but let’s be realistic here. What is the utility of price discovery and trading when the participants are legally and practically a loose aggregation of regional monopolies?
I get it’s way more complex than I could imagine and not my wheelhouse, but I look at my skyrocketing electricity bills, then look at this system, and it doesn’t seem surprising prices are going up.
EDIT: I see the other comment explaining that the trading market was essentially a financialization strategy. How very 1990s. Looks like I have some reading to do!
Siting new transmission lines can take years and at the end still fail. NIMBY very powerful with transmission and there's likely a cost-benefit gap, i.e. too little benefit to the people whose land is used or can see the new line and increasing the benefit there would outweigh the benefit to the retail customers. Generation distant from load it serves is a big problem.
"A negative loss value means that adding more electricity at a particular location will increase overall system losses, making the electricity less valuable and decreasing the overall LMP"
Shouldn't it be the other way round i.e. making electricity less valuable and thus increasing the location marginal price a buyer would have to pay, to compensate for increase in losses?
Increases are directly proportional to the investments in intermittent energy sources - wind and solar - why Calif is the highest but still not as high as Germany that has completely abandoned fossil fuels - and it’s not just electricity prices - Germany is de industrializing thus destroying GDP and their employment base
One cause could be the significantly l load AI data centers out on the grid. Demand is up, supply is down, costs go up.
This guy is a typical LIBERAL !!
Wastes so much time and space and fails to mention the elephant in the room !!!
He should tell everyone how much SUPPLY of fossil fueld generation was shut down !
This guy is a typical LIBERAL !!
Wastes so much time and space and fails to mention the elephant in the room !!!
He should tell everyone how much SUPPLY of fossil fueld generation was shut down !
This guy is a typical LIBERAL !!
Wastes so much time and space and fails to mention the elephant in the room !!!
He should tell everyone how much SUPPLY of fossil fueld generation was shut down !
This guy is a typical LIBERAL !!
Wastes so much time and space and fails to mention the elephant in the room !!!
He should tell everyone how much SUPPLY of fossil fueld generation was shut down !
New York needs to allow fracking.
Or at least allow pipelines to be built from the Ohio and Pennsylvania gas fields to the New England states, so the silliness of shipping in LNG to New England can end. If New England senators cared about their states, they'd explain to the New York senators that everything New York likes gets voted down until New York approves construction of pipelines.