How Does Wholesale Energy Work?
If you get your electricity from a traditional utility company and have never shopped for a competitive supplier, you may assume that the power flowing through the wires to your home is produced by the utility.
You would be wrong, though. The electricity and natural gas sold by consumer-facing utility companies to homes, businesses and institutions isn’t produced and delivered by those utilities. Rather, they purchase the power that ultimately flows through the lines to your home from wholesalers in competitive markets known as wholesale energy markets.
How Does The Wholesale Energy Market Work?
Here is how the wholesale energy market works.
• The power that flows through the lines to your home is generated by independent power producers.
• That power is bought and sold by independent power producers, utilities and other energy companies in competitive markets known as wholesale energy markets.
• Utility companies are responsible for delivering the electricity from these power producers to their customers, regardless of whether it’s been purchased at a wholesale or retail level.
• The wholesale electricity market is where power plant owners or operators put their power onto the electric grid.
Terms Related To Wholesale Energy
Here are some common definitions associated with the wholesale energy market:
- Wholesale Energy Market: The wholesale electricity market is where power plant owners or operators put their power onto the electric grid. It's also known as the day-ahead market because it occurs over approximately 24 hours every day.
- Peak Load: A peak load is a period of high demand for electricity on an electrical system. Peak loads occur during certain times of day and year (they're called "peak days").
How Do Wholesale Energy Prices Work?
In a competitive market, there’s no one wholesale price for electricity; prices vary based on factors such as how much power is available and how much is needed at any given time.
Wholesale electricity prices are determined by supply and demand. Wholesale prices vary by region, time of day, season, day of the week, month, and year.
Wholesale energy prices depend on how much power is available, how much power is needed, and which energy producers are producing electricity at any given moment.
These factors can have an enormous influence on the price you pay for wholesale electricity—which means they can also affect your bottom line as a business owner or utility customer.
Wholesale Natural Gas
Like wholesale electricity, natural gas is brought to the marketplace by producers. Natural gas is a fossil fuel that consists primarily of methane and ethane. It is used to power homes and businesses across the United Kingdom. Unlike coal or oil, natural gas emits fewer harmful pollutants when burned for energy production.
Natural gas is a versatile fuel, and it can be used for electricity generation, heating, industrial processes and transportation. With the advent of hydraulic fracturing technology, natural gas has become more abundant. The supply of natural gas has increased significantly over the past decade, which has led to lower prices for consumers.
Wholesale natural gas prices are volatile because of factors like weather (temperature), pipeline capacity (which limits how much supply is available) and storage inventory levels (how much excess supply is stored).
How Do You Buy Wholesale Energy?
Are you wondering how you can buy energy at wholesale prices?
Oftentimes, large industrial companies use a lot of energy, and they are able to purchase electricity and natural gas on the wholesale market. However, these instances are incredibly rare and have only started occurring in the past few years.
The majority of businesses have to purchase their energy on the retail market, which means they get their energy from wholesaler utility companies and not the power generators.
That means that if you want to get affordable energy, you should understand how the retail energy market works. There are a lot of different wholesaling suppliers with different deals and energy tariffs, so you need to shop around and find the best deal for you.
Conclusion
Without a competitive system that allows independent producers to compete in wholesale energy markets, there would be no way for customers to choose whether they get their electricity from a solar plant vs. coal-fired plant or natural gas plant.
The competitive market is the best way to ensure that customers get the best deal, as it encourages innovation and reduces costs.
That’s it! Now you know how wholesale energy works. It's time to start buying, selling, or investing in it now for the best prices!
