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of supply or demand curves is the dispatch curve for electricity:

That reflects the production capacities available, ranked by their production cost. So this is, in a very real sense one hal of your supply-demand graph.

For a given level of demand, you can determine very precisely the price that will be needed to fulfill that demand (that of the producer that allows you to reach that same number of MW at that moment, adding all the cheaper producers in the list before that producer's capacity is needed).

And all producers will get that price - and all consumers will pay that price (noting, of course, that the market is for wholesale electricity, and is likely to apply only a 1-hout slot of demand or other similarly short period).

With capacity essentially fixed in the short term, it is demand that varies and sets price as a first approximation. Of course, power plants can decide to bid for power at prices that are different from their actual cost, for various technical or other reasons, and modify the curve - but you can still rebuild a curve based on their bids.

If you look at the demand side, it may look flat (ie demand is not sensitive to price) but within ranges. Industrial users will have cutoff prices (and may thus take out a big chunk of demand is prices go above a certain level). Some may have storage capacity and similarly drop out of the market at some prices (and become sellers). etc...

And of course, long term decisions will be affected by how the short term S-D curve looks like, and will in turn help shape it differently.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Nov 11th, 2007 at 08:01:00 AM EST

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