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Which is why you need to have three different sorts of contracts: Fixed-price, fixed-volume, forward-price, scheduled-volume, and flexible price, load-following volume.

Ideally, Joe Q. Consumer would have a contract structured so that he has a baseline quota, which can vary over the day, week and year, and then pays a higher spot charge for going over that baseline.

The utility would then offer Mary Q. Producer a fixed rate for delivering power at the convenience of the producer, a higher forward rate for delivering on 24 hour notice, and a still higher rate for delivering at the convenience of the consumer. The utility would make money on the spread, and on the fact that Joe Q. Consumer will normally be within his quota (because he is risk-averse and because he has noise in his demand profile), which allows the utility to diversify out the noise in individual consumer profiles and to exploit its lower risk aversion.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jul 23rd, 2012 at 08:06:01 AM EST
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