Trade Electricity Like Pork Bellies

Mar 23, 2009 - Ben Paynter- Wired Magazine

Problem
Regional brokers are responsible for getting enough electrons to their designated areas. At times of peak usage, that means firing up an old, dirty generator (not exactly green) or importing more juice from outside the region (not exactly cheap). Eventually, someone has to build more power plants and infrastructure (wickedly expensive).

Solution
Treat electricity like a commodity—something for which you can gauge demand and set a price in advance. That's what New England's independent system operator started doing last year. In its Forward Capacity Market, the ISO projects how much power the region will need three years ahead and then runs a descending-clock auction for the right to provide it. The ISO doesn't care whether it gets its power from increased production of megawatts or from efficiencies added to the system, so-called negawatts. The agency simply sets the starting price. Result: money saved in power plants and wires, more stable electricity bills, and a homegrown incubator for getting bright green ideas off the drawing board.

$15
The independent system operator announces its need for 32,305 megawatts. Hundreds of wannabe providers—generators and conservers—offer 6,850 MW more than the ISO wants. The auction opens at $15/kW-month.

$9
With excess supply, the ISO brings the price down to $9/kW-month, then $8, and so on, shedding bidders—and surplus power—with every round.

$4.50
End of the auction: The ISO reaches $4.50 ... and still has excess electricity, which it offers to take off the providers' hands as well.
Illustration: Lamosca