This is very standard stuff in Finland for decades. And before heat pumps became popular large tanks were common and those were heated during the night.
The explanation is lack of interconnect, not losses in transmission. If you have enough capacity to transfer electricity the prices will be equal in two neighboring electricity markets.
Finland is probably like 15000 kWh/year/house (for a new house more like 10000 kWh/year). All the heating of the house & water is done by electricity, though.
There are similar retailers in Australia. They even had a insurance against these super spikes such that the customers did have some fall back security. Details I'm not sure about but check https://www.amber.com.au/how-it-works
Seems like a lot of complexity that can be solved by simple spot pricing for electricity. With spot pricing you can decouple solar and battery storage, as battery owners can make a profit by storing electricity when it's cheap and selling it when it's expensive. Solar power owners can just sell to the grid at market rate.
The problem with unrestricted spot pricing is that it's easy to end up with a surprise bill due to circumstances beyond your knowledge or control. E.g. the heating system fails in the apartment complex next door, so everyone plugs in space heaters. Your bill goes up also due to the increased demand. They can get insurance to cover this sort of eventuality -- can you?
I know two ways to fix this. First, obviously, you didn't say "unrestricted". There are various ways to restrict spot pricing to alleviate these issues, e.g. guarantee each home a particular amount at a fixed rate, and overages are at spot rates. Second, the "knowledge" angle can be attacked -- if you know that's happened, you can turn down your thermostat.
In Nordpool the prices are set the day behind so there's no surprise bill. If the spot price goes up one actually should pay more, which incentives reducing electricity consumption.
I think your apartment complex example is not that realistic as it won't affect the spot price. Something more like a war will..
The majority of consumers at home would against spot pricing like that. California already has time-of-use pricing. Peak hours are 4-9pm when there's no solar. Peak usage is people coming home from work, turning on their lights, stoves, hot water, ovens, air conditioning, etc. Are they supposed to not do that?
Raising those rates too much would just be raising rates for everyone, just so those who are rich enough to afford solar panels and batteries make more profit.
I keep an eye on the day-ahead market prices (which determine the hourly prices for time of day contracts) here in Belgium.
It turns out that the energy price charged by a traditional contract matches the peak price of a typical day, plus a healthy profit margin. This makes sense because most electricity is consumed when prices peak.
So switching to a time of day contract does not actually raise your effective price per kWh, at least here in Belgium. Instead, it more or less keeps the same price for peak time, while giving you access to much cheaper energy off-peak.
I'm not expert in the system in California, but usually consumers are already paying the average spot price (plus some significant margin, which takes into consideration the demand profile of the consumer). Switching to spot pricing would not raise rates, and if consumer would adapt slightly to spot prices the average rate would actually decrease.
This was done in Texas. You could get power at pass thru rate. The freeze came and griddy, a pass thru supplier begged everyone to switch because the rates would explode due to market demand pricing. Those who didnt switch got charged thousands because it's straight pass thru pricing.
Some who knew how this worked just turned off their breakers or switched to generators. Those who refused complained to the state, and then of course the rest is history.
This is an issue where there just weren't sane defaults.
Some people will want power to be turned off at the slightest increase in price.
Most people will tolerate a small increase in spot pricing over the normal state of affairs, but would like to be disconnected if, say, electricity more than doubles over what would be normal for that time of day.
Other people will tolerate huge increases in price-- and should be able to opt into this behavior after careful acceptance of disclosures.
Indeed, having different thresholds where demand goes away is essential for spot markets to work. Otherwise, the only change in demand is from those actively watching the spot rates (either through automation or manually). It makes sense to provide a minimal level of that automation "built into" the product.
A house will not cool down immediately. It will cool down rather slowly in most cases (or at least if it's well built). There are also various ways to store thermal energy or use alternative, non-electric heat sources.
If the price goes up 10000x there will be blackouts in any case regardless if spot pricing is used or not. Spot pricing will _reduce_ blackouts.
I'll ride out a house that's 55F for a few hours to avoid paying 100x rate for electricity.
Having the choice is better: you can have everyone decide based on their situation what reflects what they want. Otherwise, demand doesn't go away and the choice between who uses 100% of the power they want to use and who uses 0% is left to arbitrary choice.
That's so ridiculously American but fortunately 55 °F/13 °C isn't life threateningly cold. Winter Storm Uri was though. Being uncomfortable for a few hours for a couple thousand dollars, sure, make your choice. Being forced to choose to be in debt for the rest of your life, vs dying from cold exposure though? Just seems cruel to poor people. Which I guess is what passes for amusement for the rich.
If there's insufficient power after a disaster for all homes to be heated, you have to make a decision about where the power goes somehow. If you just let everyone demand all the normal amount of power, you're going to have to completely turn off a bunch of customers and the decision is going to be pretty arbitrary.
Obviously regulators should make sure these are very, very rare events (by requiring sufficient overprovisioning and redundancy vs. failure scenarios).
There are all kinds of market outcomes in a situation like this that we might not like (and might take actions to fix to some extent). But without a market and price mechanisms involved in allocating the scarce resource, you're going to get worse outcomes.
It's not just possible, it's actually done in practice.
You pay a lower rate and allow the utilities to shut off your power during peak demand. Usually people will have two meters - a regular one at full price, and a lower priced one that's connected only to heat pumps.
It's marketed as "let us control your thermostat for lower electric rates".
Yeah this would be the way to go. Intelligent, automatic, prioritized, voluntary, per-household (or even per-device) load shedding with no central planning required.
I don't think spot pricing for electricity is all that simple.
I don't think it's really reasonable for households to pay the raw spot pricing. Someone else (utility company? government?) should be backstopping the prices for them. Time of use pricing based on typical prices seems reasonable enough.
For large industrial consumers, sure; let them pay based on actual costs, and they'll adjust their peaks to save money, which helps even out the supply/demand, which is great.
For electricity producers, spot pricing isn't really enough either, though. There needs to be some compensation for available capacity as well as generation.
I agree that it makes sense to try to decouple solar and storage though. Storage's ability to move capacity from peak generation to other times is valuable and should be compensated, and there's no reason to tie it to generation.
Yeah, and then I can buy some insurance / hedges against the spot prices of electricity, day trade my air conditioner, and complete the financialization of my life.
At least on all supply side. Including residential.
On demand side, I think fixed price contracts could be allowed. It is then up to those contract providers to buy enough future contracts at lower price to generate profit. Or just ride it out and hope their math was correct.
