It’s not even limited to Europe, either. It’s just a Double Auction format, designed to find a clearing price where there is as much produced as there is purchased, at the same price for all market participants, for that particular time slot. Different grids use different time resolutions, from 5 minutes to 60 minutes in most places.
It is fair for everyone to be paid the same price for the same product at the same time. And the price will need to be high enough to actually attract producers for the demand at that moment. Those with very cheap marginal production costs (solar, wind, nuclear) can then get paid for making energy plentiful, while higher cost fossil fuels will still be incentivized to meet demand when those aren’t enough.
Basically, I don’t see any other way it would make sense. Giving less money to renewable/low carbon producers would set us back, and disincentivize buildouts of those sources.
I guess another way would be fixed prices for all nuclear and renewables since they have fixed costs anyway. The thing is, the system already works that way to an extent, as there are a lot of guaranteed prices in renewables and some in nuclear. As far as I can tell, these subsidies are why the market price sometimes goes negative when solar or wind produce a lot: the subsidized sellers don’t care, they still receive their guaranteed income based on the quantity of energy they inject into the grid. It seems to me that without these subsidies the market prices would always be high, thus better reflecting the true cost of electricity.
It’s not really a subsidy to have long term contracts. It’s just a manner to have predictability, and make it easier to plan things in the future. Some of it is a risk shift on quantity or prices, on who bears the risk if production or demand don’t match up, and whose responsibility it is to make those two number match, by cutting power to customers or paying people to disconnect their powerplants from the grid.
But the long term contracts are often there for price and volume stability. Spot prices will still fluctuate, though, especially if it’s unpredictable how much energy different renewable sources will generate at specific times in the future, or how much different customers will want to consume at specific times in the future.
Either way, it costs a lot of resources to match up supply and demand, and you’ll either use prices to help push the numbers together or you consume a lot of resources trying to mandate those numbers come together. Trying to fight price swings will cost resources in some other way.
The contracts I’m describing are just long term contracts. Buyer and seller negotiate a long term price, and that’s the market price on that timeframe, no government involvement. Sometimes the spot price moves up or down, but the contract price is stable. It’s like buying a futures contract and just taking delivery regardless of how much the price moves: you paid a single price a long time ago, and all the fluctuation in the meantime doesn’t affect the price you actually paid for the right to take delivery.
It’s not even limited to Europe, either. It’s just a Double Auction format, designed to find a clearing price where there is as much produced as there is purchased, at the same price for all market participants, for that particular time slot. Different grids use different time resolutions, from 5 minutes to 60 minutes in most places.
It is fair for everyone to be paid the same price for the same product at the same time. And the price will need to be high enough to actually attract producers for the demand at that moment. Those with very cheap marginal production costs (solar, wind, nuclear) can then get paid for making energy plentiful, while higher cost fossil fuels will still be incentivized to meet demand when those aren’t enough.
Basically, I don’t see any other way it would make sense. Giving less money to renewable/low carbon producers would set us back, and disincentivize buildouts of those sources.
I guess another way would be fixed prices for all nuclear and renewables since they have fixed costs anyway. The thing is, the system already works that way to an extent, as there are a lot of guaranteed prices in renewables and some in nuclear. As far as I can tell, these subsidies are why the market price sometimes goes negative when solar or wind produce a lot: the subsidized sellers don’t care, they still receive their guaranteed income based on the quantity of energy they inject into the grid. It seems to me that without these subsidies the market prices would always be high, thus better reflecting the true cost of electricity.
It’s not really a subsidy to have long term contracts. It’s just a manner to have predictability, and make it easier to plan things in the future. Some of it is a risk shift on quantity or prices, on who bears the risk if production or demand don’t match up, and whose responsibility it is to make those two number match, by cutting power to customers or paying people to disconnect their powerplants from the grid.
But the long term contracts are often there for price and volume stability. Spot prices will still fluctuate, though, especially if it’s unpredictable how much energy different renewable sources will generate at specific times in the future, or how much different customers will want to consume at specific times in the future.
Either way, it costs a lot of resources to match up supply and demand, and you’ll either use prices to help push the numbers together or you consume a lot of resources trying to mandate those numbers come together. Trying to fight price swings will cost resources in some other way.
It’s a subsidy when the state ends up paying the difference between the guaranteed price and the average market price.
The contracts I’m describing are just long term contracts. Buyer and seller negotiate a long term price, and that’s the market price on that timeframe, no government involvement. Sometimes the spot price moves up or down, but the contract price is stable. It’s like buying a futures contract and just taking delivery regardless of how much the price moves: you paid a single price a long time ago, and all the fluctuation in the meantime doesn’t affect the price you actually paid for the right to take delivery.