[Rage]

As part of my daily Peak Oil status check, I check the prices of energy as reported by Bloomberg (www.bloomberg.com/energy).

Along with oil, gasoline and natural gas prices they list electricty prices according to three indices:

1) Mid-Columbia, Firm On-Peak, Spot
2) Palo Verde, Firm On-Peak, Spot
3) Bloomberg, Firm On-Peak, Day Ahead Spot/West Coast

Recently, as I've seen on Bloomberg, the price of these has varied wildly - I've seen it as low as $5 per megawatt and as high as $90 per megawatt. Does anybody know why there is such volatility?

[Plantagenet]

As part of my daily Peak Oil status check, I check the prices of energy as reported by Bloomberg (www.bloomberg.com/energy).

Along with oil, gasoline and natural gas prices they list electricty prices according to three indices:

1) Mid-Columbia, Firm On-Peak, Spot
2) Palo Verde, Firm On-Peak, Spot
3) Bloomberg, Firm On-Peak, Day Ahead Spot/West Coast

Recently, as I've seen on Bloomberg, the price of these has varied wildly - I've seen it as low as $5 per megawatt and as high as $90 per megawatt. Does anybody know why there is such volatility?

Its supply and demand.

When California, for example, gets really hot like it has been for a week, they have to buy extra electricity to run the air-conditioners in L.A. This increase in demand produces a concomitant rise in price. At the extreme, the only available excess power may come from diesel fueled electrical generators....burning $4.50 diesel to make electricity. Electricity made in that way is very expensive.

[Rage]

Thanks for the answer - I'm suprised at the magnitude of the price swings - what is currently $60.00 was at one point only $5.00 and has been up close to $90 if I'm not mistaken. It hasn't been uncommon to see 50% +/- or more price swings in one day.

[Plantagenet]

The same extreme swings on the electricity spot market happened in 1999-2000 when California got caught short on electricity. There was some market manipulation then, as Enron was the middleman for power sales--- they got caught shutting down some power sources to boost the spot market prices elsewhere on the California power purchases.

Enron is gone now, but California still has to buy huge amounts of electricity on the spot market when it gets really hot in L.A.

[Starvid]

What is causing volatile Electricity Spot Market prices?

Deregulation.

[Tyler_JC]

Price is a function of marginal cost, not average cost.

No where is this more true than in the free electricity markets.

The high marginal cost of producing electricity during times of peak demand compared to the rather low marginal cost of producing electricity during times of low demand mostly explains the seemingly wild price fluctuations in the electricity market.