Wholesale Market

What is the Wholesale Market?

Electricity generators are paid for the power they produce through the wholesale electricity markets. The energy suppliers that issue customers' bills need to purchase all their customers' energy needs through the wholesale markets to balance supply and demand. In the UK we have half hourly settlement which means that there are 48 settlement periods each day. Each trade in the electricity market specifies the settlement period where the energy will be delivered. This system results in a separate market price for each half hourly block of each day. The price tends to be highest during the evening when demand is at it's highest, but is also subject to the variability of generation from wind turbines and solar panels.

Negative prices

Many of the UK's power stations and large wind and solar farms enter into long term energy contracts. In the case of conventional power stations they commit to generate a pre-determined power output in return for a reliable revenue. The Contracts for Difference (CfD) scheme - that supports development of new renewables - gives the asset owners a fixed price for their energy, irrespective of the wholesale market. These generators therefore continue to run their assets even when the market price for electricity drops. This can lead to over-supply and the market price dropping so far that it can even go negative. Consumers of electricity can get paid to increase their energy usage, and generators can get paid to reduce their output.

Deviation volumes

Any energy consumer has a typical profile where their demand is higher on average during certain days of the week and certain hours of the day. This average profile is called their Baseline. If you have control over your energy consumption and have the ability to increase or decrease the power level away from the baseline this is termed Flexibility. When you use that flexibility, and take an action to change the power level, the resultant difference to the baseline is termed the deviation volume. As of November 2023, these deviations volumes can be traded on the wholesale markets just as if they were freshly generated power from a power station.

Virtual Trading Party

Operators of battery storage, if they are registered as a Virtual Trading Party, can now buy and sell the deviation volumes associated with the battery charging and discharging. This is in parallel to the wholesale energy that is purchased by the energy suppliers. You still pay your energy bill to your supplier based on your metered energy usage, as you would any typical usage. Profits are maximized by the Virtual Trading Party if they sell deviation volumes during periods of high electricity prices and buying deviations volumes during periods of negative prices. These trading profits can then be shared with the consumer or business that is hosting the battery.