All about Energy Trading

Visitors entering the trading floor of Next Kraftwerke perceive much more monitors than people. At least four, sometimes eight monitors are grouped around each workplace. Traders watch the activities on the screens with full concentration: energy market prices, load and generation profiles, market information, weather reports, and plant schedules. The job is to keep an eye on, prioritize and evaluate a wide range of information. The acquired knowledge largely determines the traders' activities on the European power exchanges.

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.

The European Union Emissions Trading Scheme, also known as ETS or EU-ETS, is an instrument for reducing greenhouse gas emissions at the lowest possible economic cost. Adopted by the European Parliament and the Council of the EU in 2003, it came into force on January 1, 2005. As of 2019, 31 European countries with around 11,000 emissions-intensive plants from electricity production and CO2-intensive industries participate in European emissions trading.

Since the beginning of the corona crisis, negative power prices have become quite common for electricity traders: In this blog, we explain how negative electricity prices develop and what is positive about them.

How will the market value of electricity from photovoltaics develop over the next few years? In our blog we explain the results of a fundamental study by r2b energy consulting on the market value of photovoltaics in the coming years.

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.

Due to a faulty data package, the European electricity exchange EPEX in Paris decoupled the European electricity market on June 7, 2019. This caused a great deal of excitement on the markets. Johannes Päffgen, Head of Energy Trading at Next Kraftwerke, explains the causes and consequences in an interview.

A Power Purchase Agreement (PPA) often refers to a long-term electricity supply agreement between two parties, usually between a power producer and a customer (an electricity consumer or trader). The PPA defines the conditions of the agreement, such as the amount of electricity to be supplied, negotiated prices, accounting, and penalties for non-compliance. Since it is a bilateral agreement, a PPA can take many forms and is usually tailored to the specific application. Electricity can be supplied physically or on a balancing sheet. PPAs can be used to reduce market price risks, which is why they are frequently implemented by large electricity consumers to help reduce investment costs associated with planning or operating renewable energy plants.

In the energy industry, the term ‘merit order’ describes the sequence in which power plants are designated to deliver power, with the aim of economically optimizing the electricity supply. The merit order is based on the lowest marginal costs. These are incurred by a power plant and refer to the cost of producing a single megawatt hour under recent conditions. The merit order is separate from the fixed costs associated with a power generation technology. According to the merit order, power plants that continuously produce electricity at very low prices are the first to be called upon to supply power. Power plants with higher marginal costs are subsequently added until demand is met.

The merit order is just one possible model for creating a functional electricity market. It assumes that power plant operators are always trying to cover the cost of the next megawatt hour produced; they would not produce it otherwise. Power plants with low marginal costs can therefore offer a lower price for their electricity, and they are in turn called upon more often than power plants with higher marginal costs. The merit order is designed to shed light on how pricing works on the electricity market; it is not a fixed "law" that coordinates the use of power plants.