Christian Judge: Consumers, build your own generation plant

COMMENT


One area of demand-side participation in electricity markets seems to be continually overlooked - large consumers building more of their own capacity or entering into long-term contracts with generators to do so on their behalf.

Such an approach would provide a lot more certainty over price for large consumers, and give the generators contracts that bankers would back.

The proof of this already exists within vertically integrated generator-retailers.

Large consumers should get in on the act. This sort of "self-hedge" strips out volatility and allows for investment in new capacity. What's more, large consumers with their own capacity can then cash in on the very spot market they choose to rely on, but cry foul when prices spike because of short-term fuel or transmission constraints.

Instead of saying "We can't afford to run at these spot prices", they can say, "We choose not to run at these prices because we'll make more money by selling our power on to the spot market". What better way to promote demand-side participation in the market?

Finnish forestry and paper companies do just this on a collective basis. They provide cost-price power to members of the collective, and make money for them when supply is limited.

Such an approach also promotes the generation of more power where it is used. This is also good news for the stability of the grid as it should lessen transmission constraints and losses.

It should also encourage diversity of generation type and lessen - but by no means eliminate - the need for large-scale projects and proportionate fuel sourcing and consent issues that go with them.

* Christian Judge is a former executive with power firm TXU Europe.