In physical terms, the wholesale electricity market plays a central role in the operation of the French power system, by allowing the supply of electricity to be balanced with demand.
At the top of the chain, electricity injected into the network comes from the following sources:
• Around 95% from generating facilities (nuclear power plants and others);
• Imports from other European countries.
At the other end of the chain, electricity is extracted (known as “offtake”) from the network:
• To satisfy end consumption (more than 75% of the electricity offtaken is used for this purpose);
• For exports.
Some electricity is lost during transmission or used for pumping.
Part of the electricity injected into the network is not traded on the markets, but instead delivered directly to end consumers by vertically integrated companies, i.e. those acting as both generator and supplier.
The remainder of the generation or supply is traded on the wholesale markets, giving rise to multiple transactions which may result in physical nominations.
The following parties are active in the wholesale market:
Products may be traded:
Transactions may be purely financial (if the product only entails an exchange of funds), or alternatively may entail a physical delivery of electricity on the French power network.
Two types of products may be traded. Spot products are purchased for same-day or next-day delivery, whereas futures are purchased for delivery at a given point in the future.
Depending on the market concerned, spot products are:
The reference price for spot trades on the French electricity market is the price of the day-ahead product on the EPEX SPOT exchange. This price is fixed every day between 12.30pm and 1pm, via an auction mechanism. It is negotiated on the day before, with delivery the following day, reflecting the short-term supply-demand balance, before real-time adjustments are made by the French transmission system operator, RTE.
These short-term prices are highly volatile. This is due to the fact that electricity cannot be stored on a large scale, while the supply-demand balance is influenced by factors which can fluctuate rapidly, such as cold weather leading to increased electricity demand, or events affecting generating facilities (power plant outage, reduced interconnector capacity, etc.).
Electricity market players are able to sign sale/purchase contracts for the supply of electricity in future weeks, months, quarters or years, at a price negotiated on the contract date.
To make trading easier, these forward contracts or futures apply to standardised products, for example, the supply of 1 MW of base load electricity (during all hours of the month) or peak load electricity (between 8am and 8pm, Monday to Friday).
Futures represent the average of the expected spot prices over a longer period, making them less volatile. They are generally used as a basis for determining the prices paid by end consumers. When suppliers enter into contracts with customers, they generally purchase the forward products required to cover most of the electricity they will need to supply.
CRE regularly publishes analyses of developments in the electricity, gas and CO2 wholesale markets, in:
Articles L. 335-1 et seq. of the Energy Code established a capacity obligation mechanism. Each supplier is required to obtain sufficient capacity guarantees to cover the consumption of all of their customers during periods of peak national demand. This mechanism gives market participants incentives to develop demand side management capacities.
Capacity guarantees can be obtained by investing in generating facilities or DSM capabilities, or from capacity operators. RTE guarantees that these operators’ capacities will be available during periods of tightness in the power system.
After capacities have actually been delivered, financial incentives are paid at the end of the year to ensure that the various parties concerned fulfil their commitments and obligations. A secondary capacity guarantee market is organised through EPEX SPOT. The first auction of this kind took place in December 2016.
As required by Articles R. 335-48 and R. 335-51 of the Energy Code, CRE publishes the administered price and the market reference price identified in the capacity mechanism rules, for each year of delivery:
|Year of delivery||Administered price (€/MW)|
|Year of delivery||Market reference price (€/MW)|
For more information on the functioning of the capacity mechanism, see the order of 29 November 2016 defining the capacity mechanism rules, issued in application of Article R. 335-2 of the French Energy Code.