What is Spot Electricity Trading and How does the Market Work?
The electricity market is a system that allows purchases through bids to buy; o ers to sell; and short-term trades, often in the form of nancial or obligation swaps. O ers and bids use the principle of supply and demand to set the pricing. Long-term trades are typically private bi-lateral transactions and are contracts similar to those of power purchase agreements.  Trading in the electricity market di ers from trading in traditional nancial 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. These entities work as market operators and perform tasks such as power balancing operations and power plant dispatching. Although rapidly evolving, current electricity storage solutions remain expensive and are not widely available. This results in highly volatile spot electricity prices.