Markets in power
I recently received a push notification from Softbank, a PowerPoint design consultancy which runs diverse sidelines, including a power business here in Japan. Softbank anticipates grid stress due to severe weather and… complicated factors.
Although this was obliquely phrased, the big two were poor decisionmaking on behalf of Russia (invading Ukraine) and Europe generally (being fundamentally unserious about power policy), leading to ripples that would affect the price of inputs to many participants in the Japanese grid. This would have the knock-on effect of potentially bringing down the grid when salarymen get home from work and turn on their air conditioners.
“Of course, if Russia starts a war during a hot year then there will be a risk of power outages in Tokyo; that’s just science” is perhaps not the most straightforward conclusion to draw, so it’s useful to go into a bit of background into how electricity markets work. This will, I promise, help explain why Softbank wanted me to install a demand response app targeting specifically my 5 to 8 PM air conditioner use.
A few disclaimers to get out of the way: the physics of electricity generation are the same everywhere but the market structures which govern pricing it are not, sometimes due to path-dependent infrastructural reasons and sometimes due to regulatory regimes. The energy markets are a very deep topic; you’ll probably want to get your week-to-week updates from someone like Doomberg (an anonymous group of energy consultants, whose work often feels like smuggling details about hidden power structures into the public view) rather than from me.
