Shift Key with Robinson Meyer and Jesse Jenkins How Electricity Markets Work
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Aug 13, 2025 Dive into the intriguing world of electricity markets where power is sold at lightning speed! Discover how electricity pricing is influenced by unique market dynamics and renewable energy's impact. Learn about the historical evolution of these markets and the strategies behind power generation and transmission. Explore the delicate interplay between demand, supply, and market behavior, with surprising insights that even mix in sports betting. This discussion is a must-listen for anyone curious about the future of energy!
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Markets Marry Physics And Economics
- Electricity markets blend physics of the grid with classic commodity economics to set prices.
- Market design must reflect fast physical constraints and generator characteristics to keep lights on.
Marginal Generator Sets Price
- Operators dispatch generators in order of variable (marginal) cost to meet changing demand.
- The marginal generator sets the price for an incremental megawatt hour at that time.
Uniform Clearing Price Incentivizes Truth
- Real-time U.S. markets clear every five minutes and pay a uniform clearing price equal to the marginal cost.
- Paying the clearing price gives generators inframarginal rent to cover fixed costs and incentivizes truthful bidding.