Peak Power

Picture cab fares rising sharply during rush hour simply because everyone wants a ride at the same time. Peak power works on an identical principle, electricity supplied during the hours of highest daily demand, typically evening hours when homes, offices and industry are all drawing power simultaneously.

Because supply capacity is relatively fixed in the short run while demand swings sharply through the day, peak period electricity on the power exchanges routinely commands a meaningfully higher price than off peak hours, sometimes several times higher during a genuine supply crunch. Utilities and large industrial consumers plan carefully around this, shifting flexible loads to off peak hours where possible, precisely to avoid paying peak rates.

Peak power pricing is also exactly why merchant capacity, plants without a long term PPA, can be so lucrative during predictable high demand windows like summer evenings, since that is when spot prices on the exchange tend to spike hardest.