In economic terms, electricity (both power and energy) is a commodity capable of being bought, sold and traded. An electricity market is a system for conducting sales, purchases, and short-term trades. Bids and offers use supply and demand principles to set the price. Short-term trades are contracts similar to power purchase agreements and are generally considered private bi-lateral transactions between counterparties. Retail transactions (bids and offers) in electricity are typically cleared and settled by the market operator or a special-purpose independent entity charged exclusively with that function. Market operators do not clear trades but often require knowledge of the trade in order to maintain generation and load balance. The commodities within an electric market generally consist of two types: power and energy. Power is the metered net electrical transfer rate at any given moment and is measured in megawatts (MW). Energy is electricity that flows through a metered point for a given period and is measured in megawatt hours (Mwh).
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One of the colossal factors that drives the retail power market design is the need to rapidly expand energy access to underserved or unserved areas. Another major factor that pushes the market is the government regulations that emphasize on reducing the health and environmental impact of electricity service. Moreover, developing the cost-effectiveness and reliability of power utilities act as catalyst for the power market. Despite this, the retail electricity market is facing certain challenges in terms of promoting the entry of new sources of distributed generation. This is because it could be perceived as threat to the existing market participants. Furthermore, reducing health and environmental impacts by encouraging energy efficiency and greater deployment of various renewable energy sources could challenge the existing investment framework. Also, rapidly expanding energy access might increase costs for existing customers. These constraints give rise to widespread opportunities for companies and investors in terms of increasing revenues in distribution as well as retail power trading.
The retail power market is bifurcated based on the method of transaction between buyers and sellers of electricity. One method is bilateral trading, wherein the buyer and the seller come to a mutual agreement with each other over the number of units to be traded and the price per unit. Another method is to make a collective agreement based on a supply region. In this case one power generator (seller) makes an accord with a regional conglomerate to supply electricity to various buyers but under one agreement. A third method is that the buyer approaches the local energy exchange. The buyer places a bid on the per unit price of electricity and once mutually agreed, the required number of units are purchased.
Geographically, the European region is the most active in terms of electricity trading, led by Germany, Austria, France and Switzerland. The United States is the leader in the North American region with the largest over the counter (OTC) trading market. The Asia-Pacific expanse has widespread retail electricity trading with major trading facilities established in Australia, Malaysia, Singapore, China and India. Rest of the World countries that have major electricity trading operations are South Africa, the Middle East electricity trading conglomerate and Brazil, Argentina and Paraguay in Latin America.
Some of the key players in the retail electricity market are: Constellation Energy Resources, LLC, Hydro One, Inc., Enersource Corporation and R&M Electrical Group Ltd.
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