Let’s get down to the nitty Griddy of how real-time wholesale works
Electricity is an amazing thing. We flip a switch on, the lights go on. We push a button and on goes all the other appliances in our homes. But aside from paying for it, how does it get to your house – how does it work?
For starters, energy from the generators move electricity along your local utility’s poles and wires and goes straight to your home or business. Now let’s break that down even further. The wholesale price of electricity is set by ERCOT, the grid operator. That price has the ability to change every 5 minutes and is based on the grid’s real-time supply and demand.
When there is excess supply on the grid, prices drop – sometimes to -4c/kWh or lower (Whoop! Whoop!). But if there’s more demand on the grid than there is supply prices can spike (Womp, Womp, Womp). The highest prices can go is $9/kWh. Most of the time though, the wholesale price lives around 2-3c/kWh for energy only. It is important to know that in the last 12 months, the prices spiked over 30 cents about .5% of the time and over $1 about .1% of the time and above the Texas average 4% of the time.
What makes all of this wholesale? Well, every REP purchases their electricity from the same price, the real-time wholesale price. That price lives around 2-3c/kWh, remember, remember? But then, the other REPs mark it up and sell it to you at a higher rate to make more of a profit. Whereas we pass through everything (wholesale price of electricity, TDU delivery charges, and other taxes and fees) without markup and only make money off of the $9.99 monthly membership.
So how does this all make sense when prices spike? Well, Griddy members pay for those spikes in real-time when they happen. And if they happen, you have the option to alter your consumption to dodge those spikes as much as you’d like. But on a fixed rate, they are accounting for possible price spikes and their profit over the course of the time that you are on their contract. All that is lumped into your rate and is still included if there are less price spikes than they anticipated.
What you should take away from this post:
1). Griddy doesn’t control the real-time wholesale price
2). The real-time wholesale price is based on supply and demand and has the ability to change every 5 minutes.
3). The wholesale price of electricity lives around 2-3c/kWh for energy only but has the ability to go in the negatives or to spike.
4). There is a market cap of $9/kWh for a spike.
4). In the last 12 months, the prices spiked over 30 cents about .5% of the time and over $1 about .1% of the time and above the Texas average 4% of the time.