Wholesale electricity market – keeping the lights on

Wholesale electricity market – keeping the lights on


It’s getting dark, better turn the lights
on. Good plan. Amazes me that you can just flick a switch
and we have light. Just like that! Yeah! And don’t you sometimes wonder how that
happens? Now that you mention it… (Cuts in) Turns out there’s a network of
lines all around the country to do that. But it’s also because of the electricity
market. What does a market have to do with it? The market is how the electricity industry
works out: how much power is going to be needed and where, which generator is going to be
used, what the electricity will cost and who will buy it. It’s done in half-hour time blocks. Why is it done in half-hour blocks? Well the demand for electricity changes all
during the day and night, every day of the week and each season of the year. Makes sense. So, who runs this market? It’s a bit like the share market – it’s
run by a bunch of computers. Generators feed in offers of power and buyers
indicate their likely needs. All that’s analysed and then the system
sends out information and instructions. Afterwards there’s a settlement of payments. Well, I buy electricity for my home, how come
I didn’t know about this? That’s because it’s a wholesale market. Retail companies buy electricity in the wholesale
market and then they sell it on to you. Why’s that? Well the wholesale market can move up and
down a lot – you may have heard about the spot market? Yes, that’s the one you hear about when
the lakes are low right? When they say things like, “Electricity
spot prices are high.” Yeah, good spotting! The spot price is the price at a certain point
in time – and spot prices reflect what’s going on in generation and demand. They’re influenced by availability of fuel,
for example. Oh, because water in hydro lakes is fuel for
generation? That’s right, and gas or coal, geothermal,
or wind or sun. So the wholesale prices sometimes go up or
down. Some consumers are ok with that, but many
householders and businesses don’t like it. So retailers offer them a set price package
where they’ve smoothed out the pricing. Got it! And that’s good – it helps me budget. But, how do they do it? Yeah, good question. They have a number of tools, like being able
to buy ahead of time on the hedge market. What is a hedge market? It’s the forward contract market where you
can lock in a future price. If you are a retailer, this stuff keeps you
awake at night. The possibility that spot prices could go
high in future when you’ve just promised set prices to your customers is not a happy
place. I see – it’s a risk to their retail business. Yes, but a manageable one. The good news is generators can be just as
concerned about low spot prices. So both could be interested in locking in
a price they can each live with. It gives people a known set price to work
with. It’s a kind of insurance. You’ve ‘hedged your bets’. You’re a bright spark today! Well, I do like to know how things work. There’s another kind of market too… that
looks after things like power quality and reserve generation. Every now and then you might notice a flicker
in the lights? Yeah, I get a bit freaked out the power’s
going off. Well a whole generation plant may suddenly
have tripped off, but your power keeps going because reserve generation starts up very
very quickly. Amazing! It’s not going to be the same for me flicking
on the light switch after this. How on earth do you know this stuff? I read it on the internet. Awesome!

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