Electricity Markets:

Complex Systems to Keep the Supply/Demand Balance

Electricity is traded the same way as all other goods. Power plants generate power and sell it to major customer and electricity traders. They in turn sell it to local energy supply companies and/or to the end customer. In contrast to most other goods, electricity is poorly storable and transportable. Hence, the markets that deal with electricity are subject to particular conditions. Thus, maintaining the supply/demand balance at all times requires a complex market system.

Markets in transition

Through the increasing amount of variable renewable generation, the market profile is changing significantly. The Day-Ahead-Market is well-established, where active power is traded at least one day in advance. Additionally, other trading forms have evolved during the last couple of years:

  • The Intra-Day-Market, where electricity can be traded until shortly before generation.
  • In order to adjust to deviations at short notice, many network operators use so called Balancing Markets.
  • In the Reserve Power Market, generation capacity to be held available in case of unpredictable deviations from level is purchased.
  • In some countries, there are also markets for trading reactive power.
  • Capacity Markets are currently under discussion, where, instead of fed-in-energy, available power generation capacity is recompensed.

Use common potentials: the growing relevance of cross-border trade flows

With the progressing interconnection of electricity markets – for instance in Europe – cross-border trade flows become more important. Both power trading among neighboring countries and the available trade capacities have a strong influence on dispatch of available power, capacity utilization and the integration of renewable energies. Furthermore, the extension of the international power trading benefits the use of fluctuating generation, since regional imbalances can be compensated more efficiently, and temporary over-capacities can be sold towards areas where they are needed.

In this context, market coupling procedures are of great importance. The Flow Based Market Coupling scheme ensures a closer connection of trade and actual system conditions; the capacities can be used optimally without compromising operational security.

In brief
  • Power markets are subject to unique conditions due to the poor storage qualities of electricity
  • Due to the integration of variable renewable generation, the energy market profile has become more complex.
  • The importance of cross-border trading increases.

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