Too cheap to meter

Reading about the UK National Grid recently, I came across the interesting concept of demand turn up. Unlike the usual form of demand side management, where users are paid to cut usage in periods of excess demand, demand turn up involves making small payments to users willing to increase demand when the supply from renewables exceeds demand.

This looks strange at first sight, but it simply reflects the fact that, once the capacity is installed, the marginal cost of renewable electricity is zero. In the short run, taking account of the costs of shutdown and startup, the marginal cost of electricity from an operating renewable generation source is negative*.

So, demand turn up is just an application of marginal cost pricing, the same as off-peak pricing for coal-fired power.

The broader point is that claims that the electricity supply system must have a large component of coal-fired to meet “baseload demand” reflects the assumption that the system must meet the demands generated by a pricing system set up for coal (or nuclear which is broadly similar).

26 thoughts on “Too cheap to meter

  1. Oops, I forgot mining if it’s the Northwest Territories, Canada. I guess it’s a cost-benefit thing then.

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