Why is electricity traded on a daily basis?
To ensure that supply and demand are balanced in real-time and that the electricity grid remains stable and reliable.
Electricity cannot be easily stored in large quantities, so it must be generated in real-time to match the constantly changing demand for electricity.
This means that the electricity market operates in a continuous cycle of production, delivery, and consumption.
Example of the day-ahead and intraday dynamics
The main difference between the two markets is the time horizon for trading
The day-ahead market allows market participants to buy and sell electricity for the next day, while the intraday market allows for trading within the same day.
In the day-ahead market, participants submit their bids and offers for electricity to be produced and delivered in the next day.
- These bids and offers take place on the spot market of a respective power exchange (such as EPEX SPOT and NORDPOOL).
- Are then matched by a market operator to determine the market clearing price, which is the price at which all accepted bids and offers can be fulfilled.
- The tradings can also occur outside of power exchanges through OTC (over the counter) contracts between two parties.
In contrast, the intraday market allows for trading within the same day.
- This market is used to adjust for any unexpected changes in demand or supply that may arise during the day.
- Market participants can buy or sell electricity in the intraday market to meet their immediate energy needs, or to make up for any imbalances that may have occurred in the day-ahead market.
- Day trading power assets based on demand helps fulfill contract commitments, reduce imbalance costs, maximize profits, and increase system stability.
Interesting facts about spot market trading
- For both day-ahead and intraday markets, the minimum tradable amount is 0.1 MW.
- 1 MWh can range from -9,999 to 9,999 euros.
- In both markets, bidders are anonymous and trading happens on every day of the year.
- Electricity produced through both traditional and renewable methods is considered equal and is exchanged without any proof of origin certificates.
Source: Next Kraftwerke
Synertics provides advisory services and develops digital data-driven solutions for the energy industry with the purpose of driving productivity and transferring knowledge.