Wholesale Energy
Candlefocus EditorThe entire electricity industry is based on a regulated wholesale market. The governments of most countries set specific energy rates or tariffs. Then, private electricity companies or power plants sell energy (in the form of electricity) in large, wholesale blocks to energy utilities or independent power producers (IPP). The IPPs can then break up the bulk energy into smaller blocks, which are known as retail energy. That’s why the electricity delivery to your house or business is known as “retail” electricity.
Wholesale energy is typically produced from energy sources like hydro or nuclear energy, or from renewable sources like solar and wind energy. Wholesale energy is sold to resellers at competitive prices and is available to consumers across different regions in a country.
Depending on the country, there are different types of wholesale energy markets. In some countries, the government-run entities are the sole sellers of wholesale energy, while in other countries, companies that generate energy themselves can sell it at the wholesale market.
In most places, electricity is bought and sold on the wholesale market in three different ways: through the spot market, the futures market, and the wholesale index market. In the spot market, electricity is bought and sold instantly, with offers that may expire after 24 hours. The purchases made on the spot market may include energy for delivery on the same day or for another date in the future.
The futures market is used when electricity is bought and sold to be delivered at some point in the future. Electric energy futures are traded and settled on the futures exchange. The price of electricity changes every day and is based on a contract between suppliers and electricity consumers.
The wholesale index market is a specific type of futures market. It works in the same way as the other markets, but the pricing for energy is determined by a wholesaler's index. That index is based on the geographic location of the energy, the type of fuel (such as coal, nuclear, natural gas, etc.), and the supply and demand of the energy.
Wholesale energy is a complex but essential business sector. It’s what keeps the entire electricity industry churning, and allows power to be reliably, safely, and efficiently delivered to homes and businesses all over the world. Ensuring an efficient wholesale energy market is crucial to the achievement of green energy goals, as well as providing customers with quality, reliable energy at a reasonable cost.