See here for an article on the EurActiv web site on scarcity pricing. The article examines the paradox which sees that on the one hand, one of the “selling points” which make investment in intermittent renewables attractive is that returns can be achieved during a scarcity pricing period. On the other hand, price spikes in wholesale power are seen by some as “bad” for the consumer leading to overpricing.

The fine line between manipulation and reacting to market events is one of the issues raised of Ofgem in their open letter on scarcity pricing issued last December(see here). In that letter, Ofgem reminded the market that to create a scarcity situation could be considered a manipulation, whereas reacting to one is “normal” market behavior.