In 2003, the system of the wholesale electricity market underwent significant changes. The reason for this was the adoption of the relevant law, according to which the reform of the industry in the state was carried out. The main goal of the changes was to replace many small companies that provide a variety of services - from production to marketing, with three large ones. They, in turn, should specialize in only one direction:
- production;
- transportation;
- sales.
Thanks to this, an integrated network appeared, which included the Rosenergoatom nuclear concern, which is important for the country. This reform allowed to bring the energy industry to a fundamentally new level and make it one of the leading in the Russian economy.
The specifics of electricity as a commodity
The wholesale electricity market is trading a very important resource. And since this product has quite specific features, some points should be taken into account when regulating the market. The main distinguishing feature of electricity as a commodity is that all stages of movement must take place alternately and without delay. Energy cannot be stored and stored. This type of product immediately after production should immediately reach the final consumer.
Manufacturer control is possible only from the standpoint of supply volumes. But for people it is absolutely unimportant which company produces electric energy, because after its reproduction it gets into the general network.
Generating companies of the wholesale electricity market are well aware that their goods are included in the category of basic necessities. The population is very sensitive to sudden changes, jumps or lack of this product. Only as a last resort can people replace a centralized source with an autonomous station or gas heating. For this reason, deliveries must be reliable and uninterrupted.
Also, when generating electricity, the relationship between the production plan and the consumption forecast is taken into account. It should be as balanced as possible so that there is no imbalance.
Market Regulation Methods
The wholesale electricity and capacity market is highly dependent on the way the state regulates. The specific regulation method, in turn, is selected according to the relevant factors:
- type of state economy;
- type of property;
- a way of government intervention in the development of the industry.
Direct government administration of the industry
In the case of direct management of the industry, the wholesale electricity market is influenced by the state through its bodies, such as ministries. The state apparatus directs the work of the industry and all its enterprises. The state directly decides the quantity and volume of deliveries, sets the value and direction of investing profit. That is, in fact, all the work of enterprises in the energy sector (including the price of electricity in the wholesale market) is controlled from above. This method is quite tough.
Governance of the industry through a public corporation
When managed through a state-owned corporation, the state also has a significant share of influence over the industry. Unless management itself is carried out through a specially created corporation. Although this organization works in the interests of the country, it has a certain independence and autonomy of decision-making. This makes it possible to manage the energy sector more carefully, make more profit and organize the process as efficiently as possible.
State regulation and supervision of the industry
This method of regulating the industry is used in the most democratic countries. If all the players on the market are private traders, then this is the best way out. The advantage of this method is complete independence. But not everything falls on the shoulders of private entrepreneurs. Licensing, regulation and security are the work of the state. It also deals with pricing and tariff setting. Unified rules are also being developed that are mandatory in the production, transmission and distribution of energy.
Forward market
The way the wholesale electricity market is organized affects not only the efficiency of its development, but also the entire industry.
The first type of organization of the wholesale electricity market is the forward market. Its essence lies in the supply of products under previously concluded contracts. The forward market activity is carried out on the basis of bilateral contacts, the conclusion of which is carried out directly by the seller and buyer of the goods. There are several ways to move electrical energy. The first is the execution of a transaction between a producer and a consumer. The essence of the second type of contract is the resale of products. The conclusion of the third occurs on the corresponding exchange, which deals with forwards.
The advantage of this market is its reliability and safety, because it insures both parties in advance against possible force majeure circumstances. Physically, the implementation of the contract will be carried out only after the formation of the daily schedule. This is another of its advantages, because you do not need to spend much effort on organizing the work of the market.
Day Ahead Market
The trading system of the wholesale electricity market mainly determines the quantity and delivery time in advance. But since the goods can be moved using various methods, it is likely that unforeseen delays occur. However, this problem is solved quite simply. For this, temporary warehouses are organized. It is also possible to regulate this issue with the help of economic levers (for example, advance cost increase). However, coordination of supplies for the electricity market is specific. The main distinguishing features of such a market are the instantaneous transmission and consumption. For these reasons, energy flow planning is very important for a stable network.
The operator coordinates the work of the system, which determines how much, when and to whom it is necessary to deliver. His job is to schedule electrical energy. The level of satisfaction of all market participants depends on the accuracy of this plan. Therefore, the operator also takes into account the throughput of sections of electric networks. Correct calculations will help to eliminate the possibility of overload, while using all the power lines in full.
Typically, the day that the operator finally approves the daily schedule precedes the transaction day. An employee contributes to an entire market. It is this method of organization that is called "the day ahead."
The market for "real time"
The wholesale electricity market is characterized by its inaccuracy, because it is very difficult to predict clearly the supply volumes. Some deviations from what is prescribed in the contract are quite possible.
It often happens that in one place there is a lack of energy, while in another, on the contrary, surpluses appear. In any case, they will not balance each other. If the imbalance is significant, then this can lead to system failures. Therefore, the operator is engaged in the regulation of supplies.
The real-time market allows you to make the system more balanced by trading its participants with the imbalances they have.
