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If an industrialist had bid (the day before) for demand of, say, 1MW over a peak time hour, and agreed (at the last minute) to not consume that 1MW, the industrialist will obviously not pay for power it is not buying, but will in addition receive some money for having cancelled its demand.

Obviously, that means the industrialist does not have power in that period, which means that it can either (i) not produce during that period or (ii) use another source of power. The economics of either solution depend on the ability to stop production or not, the marginal cost of the production process (including and excluding electricity) and the availability - and cost - of backup power capacity on site.

The economics further depend on whether the industrialist had hedged or not its power purchases (if it has hedged its purchases, it will get the high spot market price from the counterparty and pay back the agreed fixed price, which can represent significant sums of money and make the interruption of production, or the use of expensive backup, still profitable given the negative payments and the rest)

Wind power

by Jerome a Paris (etg@eurotrib.com) on Wed Jan 2nd, 2013 at 04:51:40 PM EST
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