All about Electricity Market

Day-ahead trading of electricity refers to the buying and selling of electricity on the day before the actual production and delivery. Day-ahead trading either takes place on the spot market of the respective power exchange (often called day ahead market or day ahead auction) or through bilateral contracts between two parties - usually power trading companies - outside of the power exchange in over the counter (OTC) deals.

Power trading refers to purchasing and selling power between participants in the energy industry . Various forms of power trading are possible depending on the market design, ranging from short-term trading to long-term power purchase agreements.

For several months, the German power exchange prices have been moving in only one direction: straight up. In an interview with our electricity trader Jan Egidi, we take a closer look at this development and talk about the implications of this trend for the German renewables industry.

We need more flexibility in the electricity grid, in the electricity market, in the entire electricity system. One can hear these demands repeatedly in connection with the energy transition. This is because an increase in the share of wind and solar in the electricity mix, which generate electricity in a volatile manner and can only be controlled to a limited extent, poses new challenges for the electricity grid.

On June 22 of 2020, Poland came very close to a countrywide power outage: Power plants with a capacity of thirteen gigawatts (out of which, only six planned) went down – and subsequently, balancing energy prices rose to record level.

Sector coupling has become kind of a buzzword in European energy businesses. Most commonly, it means replacing the traditional separation of the energy sectors of electricity, heating and cooling, transport and industrial consumption processes in favor of a holistic approach. 

Sector coupling aims at decarbonizing the national economy by converting the energy supply as completely as possible to electricity, finally reaching an "All Electric Society". A prerequisite for this is the use of the complete flexibility potential of producers and consumers as well as the storage of energy in its various forms.

In the first two decades of the 21st century, renewable energies have shown that they are able to cover an ever-larger share of the world’s electricity needs. It has therefore already been possible to decarbonize a considerable proportion of the electricity supply. The current main problem of sector coupling is to extend this success to the energy- and emission-intensive sectors of transport, heat supply, agriculture, and heavy industry. The most important economic goal from the perspective of climate protection is therefore to repeat the success of renewable energies in the electricity market by coupling all sectors of the economy that generate, consume and store energy. This sector coupling, primarily based on renewably generated electricity, should be able to make net zero CO2 emissions achievable.

The liberalization of the energy market means the opening of the electricity and gas market to free competition. This has broken up existing monopolies and opened the market to more participants. In most cases, liberalization was accompanied by unbundling, which made a distinction between generation, transmission and distribution/retail in the energy sector. The aim was to make electricity supply more efficient by integrating competitive forces where possible and by integrating regulation where necessary. In Europe, liberalization began in 1996 with the adoption of the first European Directive.

The journey to the world’s electricity markets continues: This time Felix Jedamzik and Tobias Romberg from our Business Development team were on the road in Thailand and report on their impressions.

In the energy world, contract for difference is a subsidy model in which both positive and negative deviations from a fixed reference price are paid out to the contractual partner. Contract for difference is also called symmetrical market premium.

Our blog series reports on the electricity markets of the world. Our next stop is Russia – Tobias Weghorn, International Business Development Manager at Next Kraftwerke, explored the country’s VPP potential.