Verified VCDS User
- May 16, 2014
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- Melbourne, Australia
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haha - not quite, but it's even worse!! I'm not sure if your 20 cents includes delivery (I assume that it does), but if I use the Texas long-term average price in the energy market, the wholesale cost to the retailer was about $38/MWhr, or 3.8 cents in your parlance. The retailer then re-packages the same electrons, adds network costs and a (rapacious) profit margin and charges end customers about 12 cents retail (see link in post#422).I think it's very sexy that I can buy a kWh of electricity for less than 20 cents. Why? If I connected a generator to a stationary bike, I would have to ride my heart out for at least four hours to generate that 1 kWh. So I'd be getting paid 5 cents per hour. Not a very attractive wage.
So, if you want to compare apples with other apples, the true "value" (not "cost") of 1 kWhr is actually much lower because it needs to exclude the voracious retail profit
If dispatched, the revenue that generators receive from the wholesale market is the common clearing price which is guaranteed to be at least their bid price - but it is often a price higher than their bid price.If I were to try to produce my own electricity using generator, the fuel cost alone would be much more than 20 cents per kWh, and that doesn't even consider the cost of the generator itself, which would have to be amortized over its expected life, and that likely isn't more than a few thousand hours, meaning it would have to be replaced at least once a year if it were run continuously. Mind you, I have a generator, but the economics mean it only makes sense to use it as a backup, if/when grid power fails.
Economic theory says that for auction clearing processes like those in the energy market - if they are competitive, generator bids will tend towards the short-run marginal cost of producing an additional 1 x MWhr of energy (so, the cost of fuel, labor, condenser water etc).
Of course, to survive generators must also be paid their long-run marginal costs (i.e cost of the equipment itself and a return on investment). This additional payment is meant to be provided via the difference between the generator bid price and the market price - on the many occasions when the generator's bid does not set the market price.
Hence, if the market is operating correctly and generators are competitive, they should be able to fully fund their investment and make a commercial return!
As to your analysis, of course the numbers don't stack-up. But neither do you have the economy of scale of a market generator that allows for the amortization of admitedly higher cost over the very large number of total MWhrs dispatched during the working-life of the asset!
And of course, let's not forget that you are buying fuel at retail costs. I thought that I had a good handle on natural gas prices before I joined the gas industry - but I was very, very wrong!! At least down here (and I expect also in your country)- contract prices for natural gas (which is what the generator pays) are nothing like the prices that are declared at the gas hubs.