General Discussion

Electricity prices on my local grid are governed by LMP; the price is set by the highest cost of producer sending power to the grid. Unfortunately, electricity demands need to be met instantaneously, there's little to no large-scale storage available compared to how much is being used. So prices on the grid can vary from day to day and season to season. Winter time loads tend to be higher than summer time loads in most of the country.

For most large grids, the lowest cost electricity producers (base load) are the ones operating the most, but the base load doesn't cover for the entire grid on most occasions. When demand exceeds capacity, the grid manager calls up other producers bringing on the cheapest producers available then adding more to meet demand. With LMP, all producers are paid according to the cost of the highest producer providing to the grid (regardless of what the other producers costs are to produce that electricity).

This in of itself, is perverse. If grid demand grows, which it unexpectedly has as data centers come online, the producers have no real incentive to build more base load plants. Why increase production when demand goes up and you make more money without changing what you're doing?

Data centers get around LMP by buying up or building their own power production. Once they own the electricity production, their cost are fixed. And they get the benefit of selling any excess back to the grid when prices spike.

This system isn't set up so that the market will react to lower prices. If a market is functioning properly, as prices go up, other producers will enter the market so demand is met and prices go down. Another function of the market is to weed out the inefficient producers and replace them with producers who are more adept at making what the market wants.

The only real solutions I see is for folks to take energy efficiency in their own homes more seriously. Adding solar, if possible, is another option. Having battery storage on site and using it during price spikes is another option. On a large scale, states could chip in and build their own base-load plants and operate them at cost. Not the best solution, but states can access billions of dollars to build power plants easier than the average consumer. And maybe the threat of doing that will be enough to get some of the other producers to build more base load plants.

And who really knows if the AI/electricity boom is a real thing. Just like the rail roads, dot com, and Holland tulip buyers, this may only a fad. But an expensive fad, at least initially. AI could wind up bankrupting a lot of folks who want to jump on the bandwagon.