Thus we cannot react to high prices easily by cutting consumption. Demand is also highly variable within the day, causing great fluctuations in hourly prices. The short term inelasticity of both supply and demand is the main reason for price spikes. The delivery of power is also subject to transmission capacity constraints and the requirement for grid stability, further limiting the availability and flow of power. Transmission constraints can cause the formation of load pockets.
Plants located in such areas have price-setting ability.
When you need power the most, that's when everyone else also needs it. In extreme conditions when demand is hard to meet, the few providers of power can act like monopolists, asking any price they want. On the other hand, owners of inflexible plant will find it very difficult to get rid power in times of low demand, leading to negative or zero prices just to keep the plant running. Price behavior is also influenced by the cost and availability of generation, the type of generation technology, and market structure. This combination of the inflexibility of generation plant, transmission congestion, and unresponsiveness of demand leads to price volatility.