How Does Energy market economics 101: setting the electricity price Work?

Electricity prices are set by how much people want to use power and how much it costs to make that power.

Imagine you're at a lemonade stand. If it's a hot day and lots of kids come running to buy lemonade, the price goes up because there’s more demand. But if it's cold outside and only a few kids show up, you might lower the price to sell more cups.

Electricity works like that too.

Think of the whole town as your lemonade stand. When many people turn on their lights, heat, and TVs at the same time, like during a big game, they're asking for more electricity. That's called demand.

But if it’s late at night and everyone is asleep, not so many people need power. That means there’s less demand.

Now imagine you have two ways to get your lemonade: a fast machine that costs more money to run or a slow one that uses fewer lemons but takes longer.

Power plants are like those machines. Some are expensive to run, and some are cheaper. If the expensive ones are working hard because there's lots of demand, the price goes up.

So the electricity price is like your lemonade price, it depends on how much people want power and how much it costs to make that power.