Why can’t we just buy electricity at the spot price?

daaave

I’m thinking about after the current price shock is over. The government is currently thinking about redesigning the way the energy market works. How about this radical solution?

I see all sorts of time of use (eg, economy 7/10) and specialist (eg, octopus go) tariffs. They strike me as being a complicated and old fashioned solution to a problem that shouldn’t, these days, exist. And we have the government proposing a new scheme to pay people to not use power at peak times. This is, presumably what economists and the energy industry call “demand management.” Matching up supply and demand, using price as the incentive/disincentive.

The actual wholesale price of leccy varies throughout the day, depending on whether the nuclear power stations are shut down for maintenance, whether the wind is blowing and the sun is shining - and between seasons etc.

We have smart meters and cheap displays. Or mobile phones, that can update instantly.

Why can’t we just have per-minute billing for the leccy, buying at the wholesale spot price?

Your smart meter display or phone will tell you what the current price of ‘leccy is and a projection of what it will cost over the next few hours. 3p/kWh at 3am when the wind is blowing, 95p/kWh at 8pm when it’s calm. It will be constantly fluctuating.

Like, surely it will do a much better job of smoothing out demand, than the current legacy solutions and (proposed) government schemes? Smart storage heaters/smart immersion heaters/EV’s can then choose to charge at certain p/kWh rates. People can take one look at their display/phone and decide whether to put the tumble dryer on. Etc etc.

Over time, our leccy supply/demand will become more matched and efficient. What are the barriers to us doing this?

The tariff that comes closest to this is the octopus agile, but it isn’t real-time.

ispookie666

Interesting thought, not sure I'd be happy to be exposed to wild market fluctuation when some energy trader will Pump and Dump .
All you need is part of the grid or generation capacity to go down for the prices to go through the roof.  
Happened recently with the Texas grid failure. 

Bob~24601

Octopus Agile is a good example of your suggested tariff. 

That follows wholesale prices, dropping in some places to negative (there have been times people were paid money to use energy!).

There used to be a 35p cap per kW, so it would never go above that. Not sure what it's set to now. 

xeny

Spot price is based on anticipated demand. If demand ends up partly based on spot price, pricing will potentially oscillate violently, so there needs to be at the minimum some damping in such a concept.

markin

Without a cap 1kwh can wipe out a weeks or months savings, it would all have to be automated.

bristolleedsfan

Bob~24601 said:

Octopus Agile is a good example of your suggested tariff. 

That follows wholesale prices, dropping in some places to negative (there have been times people were paid money to use energy!).

There used to be a 35p cap per kW, so it would never go above that. Not sure what it's set to now. 

Max cap 78p kWh with rates dropping to negative seemingly becoming increasingly distant memory.

QrizB

daaave said:

The actual wholesale price of leccy varies throughout the day ...

Why can’t we just have per-minute billing for the leccy, buying at the wholesale spot price?
The tariff that comes closest to this is the octopus agile, but it isn’t real-time.

Energy is priced half-hourly, with 48 prices throughout the day. Octopus Agile reflects the day-ahead price of each of those 48 periods.

Real-time pricing would need a complete replacement of every electricity meter plus replacement of the entire industry back-end, and would result in hugely volatile prices.

Just look at the two pricing graphs on Electric Insights where you can compare day-ahead and spot prices. Spot prices are the more volatile ones; I think they reached £600 a kWh.

[Deleted User]

Can you imagine that - turn your washing machine on because the price is cheap, but then the wind drops or a power station shuts down and the price suddenly shoots up.  

Bear in mind that there have been prices over £1500/MWh seen in the market.

Astria

I just think of the confusion it would create, people are already confused now with IHDs, getting completely incorrect figures for energy and still not knowing what a kWh actually is. For example, I've spoken to some people recently that seem to think that the IHD tells them exactly what every device costs them per hour. They switch on the washing machine, see that the display changes from £0.10/hour to £0.90p/hour and assume it costs 80p per hour to run so go into the incorrect assumption that the shortest washing cycle is the cheapest.

Now imagine what could happen if the kWh price could change every 30 minutes.

wrf12345

Many people find it difficult just getting smart meters fitted and you would have to add intelligent switches to the house that turned on and off according to the price - possibly charging batteries when the electric was at its cheapest and then supplying the house via an inverter. All doable except Ofgem and retail energy won't let the govn put them out of business,

Looks like retail energy managed to push up energy prices just before the last cap so they could max out the amount of money the govn will have to pay them - when you have that kind of cartel power there is little hope for any fairness for the consumer or any reforms that will help them out. So reform needed but not going to happen if the govn is taking advice from people with vested interests.

jj_43

What you suggest would make a lot of sense. Markets rely upon price signals to work effectively, but some would prefer to be insulated from the price signal and effectively prefer to be subsided for their otherwise unaffordable energy usage. People would think twice if their washing machine/ev would cost 5£ to use than the 50p each 30 mins during peak demand.