ENERGY TRADING

What is Electricity

• a movement or flow of electrically charged particles, typically measured in amperes.
• is a commodity capable of being bought, sold and traded

Power and Energy

• Power is the metered net electrical output of a generator at any given time and is measured in Megawatts (MW).
• Energy is electricity that flows through a metered point for a given time and is measured in Megawatt Hours (MWh).

Electricity Market

• An electricity market is a system for effecting purchases, through bids, through offers; and short-term trades, Long-term trades etc.
• Wholesale transactions (bids and offers) in electricity are typically cleared and settled by the market operator or a Clearing House.
• Market operators require knowledge of the trade in order to maintain generation and load balance.

History

• The earliest introduction of energy market concepts and privatization to electric power systems took place in Chile in the early 1980’s
• In 1990 the UK Government under Margaret Thatcher privatized the UK Electricity Supply Industry.
• Underlying concepts of deregulation processes were
  • Separate the contestable functions of generation and retail from the natural monopoly functions of transmission and distribution.
  • Establish a wholesale electricity market and a retail electricity market. The role of the wholesale market is to allow trading between generators, retailers and other financial intermediaries both for short-term delivery of electricity and for future delivery periods.

Nature of Electricity Market

• Electricity is by its nature difficult to store and has to be available on demand. Furthermore, demand and supply vary continuously.
• There is therefore a physical requirement for a controlling agency, the transmission system operator, to coordinate the dispatch of generating units to meet the expected demand of the system across the transmission grid.
• The extent of electricity lost in transmission and the level of congestion on any particular branch of the network will influence the economic dispatch of the generation units.
• The scope of each electricity market consists of the transmission grid or network that is available to the wholesalers, retailers and the ultimate consumers in any geographic area. Markets may extend beyond national boundaries.

Wholesale Electricity Markets

• A wholesale electricity market exists when competing generators offer their electricity output to retailers. The retailers then re-price the electricity and take it to market.
• Buying wholesale electricity is not without its drawbacks (market uncertainty, membership costs, set up fees, collateral investment), however, the larger the end user’s electrical load, the greater the benefit and incentive to make the switch.

Risk Management

• Financial risk management due to the substantial price and volume risks.
  • extremely high price volatility at times of peak demand and supply shortages depending on generator types and whether conditions
  • “Volume risk” is often used to denote the phenomenon whereby electricity market participants have uncertain volumes or quantities of consumption or production..

• Electricity retailers, and generators enter into “hedge contracts” with each other.
  • forward contracts for physical delivery
  • contracts for differences where the parties agree a strike price for defined time periods

Wholesale Electricity Markets

• Austria – EXAA (Energy Exchange Austria )
• Scandinavia – Nord Pool (Nordic Power Exchange) for Norway, Denmark, Estonia, Sweden and Finland
• France, – Powernext
• Germany – European Energy Exchange EEX
• Great Britain – Elexon
• Ireland – SEMO (Single Electricity Market Operator)
• Italy – GME (Gestore dei Mercati Energetici )/IPEX(Italian Power Exchange)
• Netherlands, UK, Belgium – APX-ENDEX
• Spain – OMEL Electricity Market (Operador del Mercado Ibérico de Energía )

USA Electricity Markets

• PJM
• ERCOT Market,
• New York Market,
• Midwest Market,
• California ISO,
• New England Market

Retail Markets

• A retail electricity market exists when end-use customers can choose their supplier from competing electricity retailers.
• Real-time pricing (prices based on the variable wholesale price)
• Retail Markets also exists in single generator scenarios.
• New technology turns home electricity users to active participants in markets

Event-driven SOA software could allow homeowners to customize many different types of electricity devices found within their home to a desired level of comfort or economy.

Market Trends

• Experience in the introduction of wholesale and retail competition has been mixed.
• Ongoing trend continues to be towards deregulation and introduction of competition.
• 2000/2001 major failures such as the California electricity crisis and the Enron debacle caused a slow down in the pace of change.
• However, this trend is widely regarded as a temporary one against the longer term trend towards more open and competitive markets