Comment by refurb
2 years ago
You don’t get the same outcome.
Consider the payment as the cost of maintaining demand during periods where you don’t want it.
It's like a factory that can only produce 100 widgets each week, nothing more or less. Ideally you want to always sell 100 widgets each week (supply = demand). You could build a smaller factor that only makes 60 widgets, but the cost per widget would be 50% higher and at market rates you can't make enough money to justify the investment.
So what you do is build the 100 widget factory and you sign up a customer who will always buy 40 widgets each week, and the remaining 60 widgets you sell to smaller customers.
If suddenly the demand from smaller customers hits 90 widgets one week, you don't want to just cut off the 40 widget customer and say "tough shit", because they may not come back and you're stuck with 40 widgets each week you can't sell.
So you pay them money in exchange for accepting a lower supply of widgets that week.
Even with the payments, net-net you’re better off because during the 50 weeks per year when smaller customers only buy 60 widgets, overall your set up is more efficient.
“If suddenly the demand from smaller customers hits 90 widgets one week.”
Demand and price are linked. If you’re selling 40 units a week at 10$ and demand increase to 90 units @ 10$ that doesn’t force you to sell at 10$, you can spike prices to 50$ and suddenly people aren’t trying to buy 90 units.
But this is demand like residential A/C. It's not good business to deny those customers electricity.
There’s no denying involved in setting prices higher.
Electrify customers pay a premium to have a fixed rate. Customers swap to market rates because they can save a little money on average and significantly more if they delay use to cheaper periods. Such as plugging in an EV when you get home but only charging it from 12pm to 4am or whatever.