Wholesale Electricity Markets
The trading of electricity in a wholesale market is increasingly becoming common in most developed and developing economies. The wholesale electricity market stems from the concept of wholesale trading which relates to the business of selling goods in large quantities of goods to anyone other than the ultimate consumer.
The wholesale electricity market allows producers, distributors, and consumers of electricity to trade in a rule-based market driven by demand and supply factors. Electricity, though it may appear to be an intangible commodity, is very tangible and has been traded like any other commodity in a market for many years by various economies.
According to the March 17 edition of Research and Markets, the global electric power generation, transmission, and distribution market was expected to grow from $4,091.77 billion in 2021 to $4,433.15 billion in 2022 at a compounded annual growth rate (CAGR) of 8.3%. The market is expected to reach $5,932.43 billion in 2026 at a CAGR of 7.6%.
(Source: Research and Markets, March 17, 2022).
Even though electricity can be generated from various sources, the tradable commodity (the energy measured in kilo-watt hours – (kWh)) is the same though the trading markets, as compared to the trading of other commodities and financial assets, are different. Whilst commodity and financial instruments such as equities, bonds, and other commodities, are traded and delivered at any point in time, electricity is produced and consumed instantly. This peculiar characteristic of electricity needs a deeper understanding, as it is the main difference between wholesale energy markets and traditional financial and/or commodity markets. Even though with current technological advancements in battery storage efficiencies the need to consume electricity instantaneously may change in the future, and further alter the wholesale electricity market as we know it. But until that happens and costs of battery energy storage come down low enough, wholesale energy markets remain a viable means of reducing energy costs and ensuring energy access, particularly in this part of the world.
