All about Electricity Market

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.

The term market coupling refers to the aim to form an interconnected (European) market for electricity. Market coupling is intended to link control areas and market areas in order to harmonize different systems of electricity exchanges and, in particular, to reduce price differences. This way, the electricity market is to some extent aligned with the physical reality of electricity flows, since neighbouring electricity grids are in any case physically interconnected and electricity always takes the shortest route from producer to consumer - across market boundaries. Market coupling systems (PCR, FBMC and XBID) exist both in day-ahead trading and in intraday markets. This is also valid for electricity markets outside Europe, but the details provided here refer to the European market only.

Electricity consumption is often referred to as ‘load’ in the energy industry. Load management is the active control of electricity consumption. It is also known as ‘demand side management’ or ‘DSM'. Often, it refers to controlling electricity consumption based on financial signals from the electricity market. Load management is an important part of the concept of a smart grid, whereby existing infrastructure is equipped with intelligent monitoring and control technologies. The result is a network of active and reactive loads. There are differences between load shifting, load reduction, flexible load, and load expansive control measures. The following article addresses load shifting and load reduction (or load shedding) in more detail.

Intraday power trading refers to continuous buying and selling of power at a power exchange that takes place on the same day as the power delivery. In Europe, the largest intraday power exchanges are the EPEX Spot (European Power Exchange Spot Market) in Paris and the Nord Pool. It can also take place in an OTC trade (over the counter), which means off-market contracts negotiated between power buyers and sellers. This is also known as the short-term wholesale power market, especially in contrast to long-term power trading on the power futures market.

In terms of the underlying concepts, an energy-only market is the opposite of a capacity market. An energy-only market only compensates power that has been produced. A capacity market, on the other hand, compensates the mere readiness, or capacity, for power production. 

To ensure supply is guaranteed, the energy-only market is supplemented by various flexibility options, such as control reserve markets. Beyond that, there are usually additional reserve models similar to a capacity market aimed at guaranteeing supply.

Electricity markets around the world are experiencing a fundamental change: the rapid rise of renewable power generation. In some places the power generation of renewables is occasionally exceeding the total demand in the electricity grid.