Transmission & Distribution

The Electricity Market

The electricity market consists of:
• Electricity suppliers, who buy electricity from generators and sell to consumers;
• Consumers, industrial and private, who use electricity and pay suppliers via their bills;
• Transmission system operators (TSOs), in charge of the long- distance transport of electricity and for ensuring system stability and distribution system operators (DSOs), responsible for delivering electricity to consumers;
• Regulators, who set rules and oversee the functioning of the market. Regulators cooperate within the framework of the ACER, the Agency of the Cooperation of Energy Regulators.
• Law-makers at national and EU level, who supervise the activities of the regulators and fix taxes and levies on energy products and services (used, for example to support production of renewable energies and guarantee an affordable price to more vulnerable consumers

There are two major types of electricity markets:
• The retail markets consist of suppliers, who offer electricity contracts approved by the competent regulator, and household consumers, who have the right to choose their supplier. Suppliers differentiate their offers based on price or on the origin of the electricity.
• The wholesale markets consist of generators, electricity suppliers and large industrial consumers, who generally benefit from lower prices than households. Wholesales markets are integrated on a transnational regional level (market-coupling) such as the central west European region, which helps avoiding congestion and harmonising prices.

New players on the electricity markets include energy service companies which specialise in assessing, designing and implementing energy efficiency and renewable energy projects), aggregators (who bundle electricity supply from small generators), and prosumers (entities – mainly households - which produce and consume electricity).

Electricity differs from most other goods in that it must be produced at the moment when it is needed (storage of electricity is still under technological development). Therefore, most electricity transactions involve the delivery of electricity at some point in the future. Depending on the type of contract or market, transactions may cover different periods of time:
• Long-term contracts: up to 20 years or more;
• Forward and futures markets: weeks to years in advance;
• Day-ahead market: the following day;
• Intra-day market: delivery within a specified time period (for instance, an hour or a quarter);
• Balancing market: real-time balancing of supply and demand.

T&D equipment manufacturers and suppliers are fully involved with the modernisation of the electricity infrastructure by providing smart and low-carbon equipment. Their development depends on investments made by the generators, TSOs and DSOs, themselves highly depending upon the evolution of the electricity markets.