ELECTRICITY
Electricity: Forms of Trading and Market Functioning Principles
Electricity is a key commodity in the modern market, subject to various forms of trading. Like any other commodity, electricity is produced by generators, purchased by intermediaries, and sold to individual customers, companies, and institutions. Delivering electricity from the producer to the customer requires advanced infrastructure and complex logistical operations.
Forms of Electricity Trading
Contract Market
Trading on the contract market occurs based on agreements between two parties: energy producers and energy trading companies or final customers. These contracts specify the terms of energy delivery, including price, quantity, and contract duration.
Exchange Market
Trading on the exchange market takes place on the Polish Power Exchange (Towarowa Giełda Energii S.A., TGE), primarily on the Day-Ahead Market (DAM). Quotations on the DAM occur daily, with transactions planned for the day before the physical delivery of energy. Market participants place buy and sell orders for specific hours, creating supply and demand curves.
Balancing Market
The balancing market ensures equilibrium between concluded transactions and the actual demand for energy. System operators monitor energy consumption and make adjustments as necessary to maintain grid stability.
Segments of the Electricity Market
Retail Market
The retail market involves transactions between energy suppliers and final consumers, such as households, businesses, and institutions. Consumers can choose their energy supplier based on price, energy sources, and service packages.
Wholesale Market
The wholesale market is a platform where energy producers, distributors, and other entities trade large volumes of energy. Prices in this market are determined by supply and demand and other market factors.
Futures Contracts
The parties commit to buying or selling a specified amount of energy in the future at a fixed price. Futures contracts help to hedge against price volatility.
Options
Options on electricity give the right, but not the obligation, to execute a transaction at a specified date and price. They enable price risk management.
Auctions
A process where participants submit bids to buy or sell energy. Auctions can be organized by government institutions, independent transmission system operators, or other organizations.
Electronic Platforms
Modern trading platforms allow transactions to be conducted online, offering analytical and reporting tools to support decision-making.
Peer-to-Peer (P2P) Trading
P2P platforms enable direct energy trading between producers and consumers, often using blockchain technology to track and authorize transactions.
Power Purchase Agreements (PPA)
Long-term agreements between energy producers and consumers, where the consumer commits to buying a specified amount of energy at a fixed price for a set period.
Emission Trading Systems (ETS)
In some cases, energy trading is linked to emission trading systems, where companies trade greenhouse gas emission allowances, impacting their energy strategies.
Principles of the National Energy Market Functioning
The Energy Law and related regulations contain the basic principles of the national energy market’s functioning. Energy law in Poland does not impose specific restrictions on how energy trading is conducted, allowing for a variety of forms and methods of transactions.
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