The power generation market absolutely works like this. The problem is that the power consumption market does not. Since most customers only pay a fixed average price/kWh instead of a time of use tariff, so people have no incentive to conserve power since they're still paying the same price even though the spot price has gone up by an order of magnitude.

If the consumers paid the spot price and realized their air conditioner now cost something like $10/hr to run, I bet you demand would come down. The problem is that this would completely screw over those that can't adjust their demand in the process.