Wholesale electricity market
European Union Electricity Market Glossary

 


 

 

Wholesale electricity market is influenced greatly by features of electricity as a non-standard commodity.

 

Among these specificities, in particular, are:

 

1. the requirement to balance of electricity generation and demand continuously,

 

2. limited and very costly storage capacity,

 

3. the laws of physics that govern the flows of electricity and cause that the share of electrical flows through the network depends on the physical location of injections in and withdrawals from the network,

 

4. the limitations on infrastructure that have a strong influence on market organisation and design, the flow of electricity from generators to loads may cause problems related to operational security (such as overloading of network elements),

 

5. congestions and capacity allocation limit the trading possibilities and competition in the market,

 

6. operational security constraints and the physical limits characterising the transmission network restrict possible combinations of injections and withdrawals in the network (see The influence of existing bidding zones on electricity markets, ACER's Consultation document, PC_2013_E_04 31 July 2013 (p. 5)

 

Products traded in wholesale electricity markets include both short term and long term physical products and short term and long term financial products. The contracts can either be standardised contracts, admitted to trading at organised market places, or non-standardised contracts traded OTC.


Physical products traded in wholesale energy markets range from hourly contracts traded in the intra-day market to long term physical forwards. Derivatives are financial products whose value is dependent on the value of an underlying asset. There are several different kinds of derivatives contracts. The most common ones are futures, options and swaps.


Market rules, product definitions and product descriptions vary between the various exchanges, however they can be generalised as follows:

 

 

 

 

Day-ahead spot contracts

  

Contracts traded for physical delivery during the next day. Hourly contracts and flexible block contracts can be traded, subject to relevant market rules. Day-ahead spot prices are usually set in auctions, where market participants submit their bids until the closure of the call phase. Some power exchanges distinguish between Base load and Peak load contracts.

 

Base load contracts

 

Contracts for delivery from Monday to Sunday, usually 00.00-24.00.

 

Peak load contracts

 

Contracts for delivery Monday to Friday, usually between 08.00- 20.00 or 08.00-18.00.

 

Intraday spot contracts

 

Contracts traded the same days as delivery. Market participants trade in the intraday market to correct imbalances they may have after the day-ahead trades. Intraday trading is usually carried out in continuous trading.

 

Physical forwards 

 

Contracts for physical delivery at a specific time in the future at price determined when signing the contract. The day-ahead spot price at the point of time for delivery does not affect the contract.

 

Futures

  

Financial contracts with a physical underlying product where, at delivery date, the amount of money corresponding to the value of the underlying product is delivered at a predetermined price (contrary to physical forward, where the actual physical commodity is delivered).

 

Options

 

Contracts that offer the buyer the option or the right, but not the obligation, to buy or sell an asset at a pre-defined price at a specific time. 

 

 

Source: ACER's annual report on its activities under REMIT in 2012

 

 

  

 

 


 

 

Links

 

 

Wholesale energy market under REMIT Regulation

 

 

 

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Last Updated on Saturday, 15 October 2016 20:49
 

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