The Electricity Market

Definitions

The wholesale market

In  the wholesale market electricity is traded (bought and sold) prior to its supply to the destination grid of the end customer (individual customer or commercial)..

The players

The players on the wholesale market are:

  • the electricity producers (who own the generating stations): they trade and sell their production
  • the electricity suppliers (who subsequently sell electricity for consumption by the end customer): they trade and supply electricity
  • brokers or traders: they purchase electricity for resale and thus favour market liquidity

The trading places

Trading can take place:

  • on stock exchanges (Epex Spot France for spot products, based in Paris, and EEX Power Derivatives France for future products, based in Leipzig)
  • via brokered mutual agreement, i.e. via a broker
  • via direct mutual agreement (pure two-way)

Transactions may be purely financial (if the product is purchased and then resold), or may lead to a physical supply to the French grid.

The different segments of the wholesale market

Upstream, the electricity supplied to the French grid comes from:

  • generating stations for over 90%
  • imports from other European countries

A share of production is not traded on the markets and is supplied directly to the end customer due to the presence of integrated energy companies (i.e. both producer and supplier).
The remaining production is traded on the wholesale markets, giving rise to several transactions which may lead to physical nominations.
In addition, EDF offers access to 5,400 MW of its production capacity located in France via quarterly auctions (Virtual Power Plants or VPP).

Downstream, electricity is drawn from the grid:

  • for end consumption for over 80%
  • for export
  • and a share is lost

The diagram below shows the different upstream and downstream segments in 2009.

 
Source : RTE (data 2011)

Products and pricing

A distinction is made between spot or cash products (purchased for delivery on the same day or following day) and forward products (purchased for delivery during a given period in the future).
Each product is characterised by ‘base’ supply (24 hours a day, 7 days a week) or ‘peak’ (supply from 08.00 a.m. until 08.00 p.m. from Monday to Friday).

Spot products

Depending on the markets, spot products are:

  • daily products (day-ahead) or week-end products
  • half-hour or hourly products or in blocks of several hours

The reference price for the spot trade is the price of the day-ahead product on Epex Spot, fixed every day at 12 noon by an auction mechanism. This price is negotiated on the evening before delivery the following day, which reflects the short-term supply-demand balance before adjustment (performed by RTE in real time).
These short-term prices are highly volatile. The electricity cannot be stored (an excess in demand at a given time cannot be compensated by an excess supply a few hours beforehand) and the factors which influence the supply-demand balance may vary greatly, as can the climatic conditions (cold weather pushing up consumption, an absence of wind which leads to a fall in wind-power generation in Germany etc.) or events, foreseen or unforeseen, in the electrical generation park (power station breakdown, lowered interconnection capacity etc.).

Source : Epex Spot base day-ahead pricing

Forward products

To minimise the risks inherent in the spot market, the electricity market players sign electricity sale/purchase contracts for the supply of electricity over the weeks, months, quarterly periods or years to come, at a price negotiated on the contract date. These forward, or future contracts, cover standardised products in order to facilitate their trade (for example, supply of base electricity MW, i.e. during all hours of the month, or at peak times, i.e. from 08.00 a.m. until 08.00 pm from Monday to Friday).
With a longer horizon, and actually corresponding to an average of the spot prices anticipated for the period in question, future products are less volatile. These products are used to define pricing for the end customer: when a supplier signs a contract with a customer, he will generally cover himself for the majority of supplies he will have to make by purchasing the future products required.

Source : base annual product price (supply for year n+1) – EPD France

Latest figures

 View the latest figures published in CRE’s electricity and gas market observatory

Publications associated with the NOME Law (new organisation of the electricity market)

List of current applicable framework agreements:

In accordance with Article L. 366-5 of the Code de l’énergie (French Energy Act), CRE publishes the list of suppliers who have signed a framework agreement with EDF (Electricité de France) on its website.

Quantity of ARENH sold for the first level:

The total ARENH sold to all suppliers for the delivery period commencing 1st July 2011 is 61.3 TWh.
The total ARENH sold to all suppliers for the delivery period commencing 1st January 2012 is 60.7 TWh.

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