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Every hour, the energy companies say they can produce x kilowats, and they'll sell it for y. Then, the people who run the grid say we need z kilowats for the hour, pick all the lowest priced suppliers, and I think pay them all the highest bid they accept.
You even get power stations that make money by buying low and selling high. There are pumped hydro electric power stations in Wales that do this.
They do it by buying power when demand is low and using it to pump water from a low lake to a high lake. When demand is high again later in the day they can generate power to sell back to the grid at a higher price by letting the water flow back again.
They also have the advantage that they have multiple generators within their site, meaning that they can bring extra capacity online within a few seconds if needed, which is something most other power stations cannot.
http://en.wikipedia.org/wiki/Pumped_storage_hydroelectricity
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