Why Electricity Markets Go Haywire
A McKinsey report on electric market price volatility argues that because demand varies on a short and long term basis, and because supply can also become tight (e.g. hydropower reduction during a drought), there will be significant price volatility, unless there is a “substantial reserve margin.” Because this report is a few years old, it would be interesting to compare their predictions with actual market behavior. [You will need to register to get to the article.]
Interesting article:
1) I checked the prices in Sweden for the past 4 years. The highest avg. price increase was between 2002 and 2003 (which was ~40%). It does not look haywire in retrospect.
(I would have liked to see “Peak” Price charts since they would be the real measure but google did not get any quick results there). See:
http://www.scb.se/templates/tableOrChart____85468.asp
2) Article ends with a comment “A complementary approach would be to give customers strong incentives to use less electricity at peak periods”
Given that electricity markets are inelastic because of lack of alternatives it would be interesting to see what other workable measures people can think of preventing peak usage apart from the price itself (what is a bigger dis-incentive than paying 2 times the price as people do in ‘haywire’ market)
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