What is Spot Electricity Trading and How does the Market Work?

The electricity market allows purchases through bids to buy; offers to sell; and short-term trades, often in the form of financial or obligation swaps.

Trading in the electricity market differs from trading in traditional financial markets because electricity is generally produced and consumed instantly.

Because it cannot be easily stored at the wholesale level, supply and demand have to be balanced in real time.

Electrical energy markets are more fragmented than traditional capital markets. They’re managed and operated by Independent System Operators, or ISOs.

Although rapidly evolving, current electricity storage solutions remain expensive and are not widely available. This results in highly volatile spot electricity prices.

Spot trading is a contract of buying or selling a commodity for immediate payment and delivery, typically occurring two days following the trade date, known as the spot date. In the electricity market, the spot price is the cost of purchasing electricity from the wholesale market.

The price changes every 15, 30 or 60 minutes, depending on the market. The change can be drastic depending on how great a mismatch there is between supply and demand.

Spot electricity is divided into four separate categories: forecast, provisional, interim and final.

Forecast prices provide the consumer with information on how and when to best use electricity.

After electricity has been generated and used, Provisional prices are then calculated.

Interim prices allow the consumer to identify any errors or mistakes before the prices are finalized.

the pricing manager calculates Final prices and sends them to the clearing manager who calculates the invoice between the sellers and buyers.