How can it be that the power price for all electricity is determined by the most expensive generator? It's a fair question by many politicians, but not quite what happens. Renewable energy is already sold at contractually low fixed prices set a while back. These PPAs are now more expensive, perhaps a good incentive for some extra renewable capacity. At the end of the day, spot markets also need to be protected by the new market design for possible low spot prices in future.
Marginal pricing is the normal pricing mechanism for most markets. The issue with electricity is that demand is very "inelastic" (ie not sensitive to price: you don't check the price of electricity when you switch on the light; only some industrial users may have some flexibility in the short term), and in parallel supply flexibility has a very speed curve: to bring in a new power plant at peak demand means that this power plant does not function the rest of the year, when demand is lower, so it must make enough money in that short period of peak demand to be profitable the whole year: it thus requires very high prices to be switched on.
We do need power markets to balance all the time, so it is important to ensure that the peak capacity is available; here ,we have a supply shock, so a lot of the normal supply is suddenly gone, and you need to bring in the expensive producers much more frequently than usual.
Did you check the prices in UK?? They are insane, way higher than Germany.
Which prices? Retail or wholesale?
How can it be that the power price for all electricity is determined by the most expensive generator? It's a fair question by many politicians, but not quite what happens. Renewable energy is already sold at contractually low fixed prices set a while back. These PPAs are now more expensive, perhaps a good incentive for some extra renewable capacity. At the end of the day, spot markets also need to be protected by the new market design for possible low spot prices in future.
Marginal pricing is the normal pricing mechanism for most markets. The issue with electricity is that demand is very "inelastic" (ie not sensitive to price: you don't check the price of electricity when you switch on the light; only some industrial users may have some flexibility in the short term), and in parallel supply flexibility has a very speed curve: to bring in a new power plant at peak demand means that this power plant does not function the rest of the year, when demand is lower, so it must make enough money in that short period of peak demand to be profitable the whole year: it thus requires very high prices to be switched on.
We do need power markets to balance all the time, so it is important to ensure that the peak capacity is available; here ,we have a supply shock, so a lot of the normal supply is suddenly gone, and you need to bring in the expensive producers much more frequently than usual.