Short answers, pulled from the story.
An electricity market is a system that enables the exchange of electrical energy through an electrical grid. Generators offer electricity output to retailers, retailers re-price and sell it to customers, and a market operator or independent system operator clears transactions, typically in intervals of 5, 15, or 60 minutes.
Electricity cannot be stored in meaningful quantities, so supply must match demand at every instant. Peak prices can reach 100 times the off-peak price, far exceeding the seasonal variation seen in comparable markets such as airline tickets or hotel rooms. Physical constraints, including generator ramp speeds and grid frequency limits, amplify volatility during supply shortages.
Locational marginal pricing assigns each node on the transmission network its own market price, calculated as the hypothetical incremental cost of supplying one additional kilowatt-hour at that location. It is used in US markets including PJM Interconnection, MISO, ERCOT, ISO New England, and in New Zealand and Singapore.
After deregulation, US wholesale markets introduced price caps to prevent market power abuse, but those caps were often set well below the value of lost load during shortages. This left generators unable to recover the cost of building reserve capacity that is only called upon rarely, turning a prior problem of overinvestment into one of underinvestment and reduced grid reliability.
Chile was a pioneer in electricity deregulation. The law of 1982 codified changes that had begun in 1979, making it the first country to adopt a competitive market approach to electricity generation.
In pay-as-bid markets, each successful bidder receives exactly the price stated in its own bid, an approach used by the UK and Nord Pool's intra-day market. In pay-as-clear markets, all successful bidders receive the same clearing price, equal to the highest accepted bid. Pay-as-clear is more common because it incentivizes bidders to offer close to their true marginal cost, whereas pay-as-bid rewards bidders who can accurately estimate other participants' bids.