What are energy markets?
Energy markets are trading places where electricity is bought, sold and priced at different points in time. Because electricity cannot easily be stored on the grid, production must be continuously adjusted to demand.
That is why several markets exist side by side: long-term markets that offer price certainty and real-time markets that immediately stabilize the grid. Together they ensure that there is always sufficient electricity available, at the most predictable price possible, and that the system continues to function safely.
Futures or forward market
The futures or forward market is the long-term market on which energy producers, suppliers and industrial customers purchase or sell electricity months to years in advance. This market is mainly about hedging risks and creating price certainty for the future.
Key features of the futures market
- Goal
- Creating price certainty and covering financial risks.
- Time horizon
- Months to several years ahead.
- Who trades here
- Producers, suppliers, traders and industrial users.
- Influence on the daily grid balance
- Very limited, but the market does form the basis for investment decisions and contract agreements.
Day-ahead market
The day-ahead market is the market on which producers, suppliers and large customers purchase or sell electricity one day in advance. A price is set for each hour of the next day based on bids and demand.
This market therefore forms the backbone of the daily planning within the electricity system. For the Netherlands, the day-ahead price of the EPEX market is the reference price.
Key features of the day-ahead market
- Goal
- Planning production and consumption for the next day.
- Time horizon
- One day ahead, with hourly rates.
- Who trades here
- Producers, suppliers, trading companies and major buyers.
- Influence on the daily grid balance
- Large: this is the basic planning that is later adjusted via the intraday and imbalance market.
Intraday market
On the intraday market you can adjust positions within the same day based on the most current insights.
As soon as expectations change, for example due to changed weather forecasts or unexpected deviations in production and consumption, market parties can correct their previously planned volumes.
Key features of the intraday market
- Goal
- Adjusting production and consumption within the same day.
- Time horizon
- Trade until just before delivery (up to 5 minutes in advance, depending on the product).
- Who trades here
- Producers, suppliers, traders, aggregators and parties with flexible capacity.
- Influence on the daily grid balance
- Very large: this market absorbs most short-term fluctuations before TenneT has to intervene.
Imbalance market (real time)
The imbalance market is the market on which TenneT monitors the balance between production and consumption in real time. If the actual situation deviates from the planning in the day-ahead and intraday market, TenneT intervenes immediately.
The imbalance price rewards parties that help restore the grid balance and charges parties that further unbalance the grid.
Key features of the imbalance market
- Goal
- Immediately restoring balance to the electricity grid.
- Time horizon
- Real-time, per fifteen minutes (sometimes faster).
- Who trades here
- Balance Responsible Parties (BRPs), Balancing Service Providers (BSPs), aggregators and flexible power such as batteries.
- Influence on the daily grid balance
- Maximum: this market keeps the grid stable and prevents disruptions.
Reserve and balancing markets
In addition to the day-ahead, intraday and imbalance market, there are additional markets with which TenneT guarantees the stability of the electricity grid. On these reserve and balancing markets, TenneT contracts power in advance that can be deployed when automatic or manual corrections are required.
Due to the growth of solar and wind energy, the demand for this flexibility is increasing rapidly. You can read how this control capacity is built up on the page about the regulation market.
Key features of the reserve and balancing markets
- Goal
- Provide immediate support when the frequency threatens to deviate from 50 Hz.
- Time horizon
- From seconds (automatic) to minutes or quarters in advance.
- Who trades here
- Balancing Service Providers (BSPs), aggregators and owners of flexible assets that meet the technical requirements.
- Influence on the daily grid balance
- High: these markets form the “safety buffer” when production and demand need to be adjusted quickly.
Typical products
- FCR (Frequency Containment Reserve)
- Automatic response within seconds.
- aFRR (automatic Frequency Restoration Reserve)
- Automatic adjustment within minutes.
- mFRR (manual Frequency Restoration Reserve)
- Manual deployment to correct larger deviations.
How do the energy markets in the Netherlands work together?
The various energy markets together form a chain that keeps the electricity system in balance day and night. Each market has its own role and time horizon, but they are logically connected.
- The long-term markets determine financial expectations.
- The day-ahead market establishes the basic planning.
- The intraday market corrects deviations within the same day.
- The imbalance market keeps the grid stable in real time.
- The reserve and balancing markets provide additional security, because TenneT contracts flexibility in advance for moments when quick action is required.
Electricity prices: how are they determined?
People often talk about “the electricity price”, but in reality there is no one price: each energy market has its own price formation. In practice, people usually mean the day-ahead price, because that is where a large part of the trading takes place and this price is immediately visible to consumers and companies.
Day-ahead prices are determined using the principle of marginal pricing. Producers offer their electricity at their variable costs, ranked in a so-called merit order: from cheap (solar and wind) to more expensive (such as gas-fired power stations).
The demand curve slopes downwards. Where both curves intersect, the Market Clearing Price arises: the price that applies to all producers for that hour.
If there is a lot of sustainable generation available, the Market Clearing Price is low. If the demand is higher than the supply of sun and wind, more expensive installations such as gas-fired power stations are used and their variable costs determine the price.
As a result, electricity prices per hour can vary greatly and have a direct impact on the energy bills of companies and households.
Smartbox
Achieve maximum returns on the energy market with Smartbox
The energy market is becoming increasingly dynamic due to the growth of solar and wind energy. This makes flexibility more valuable than ever.
That is why we have developed a smart energy management system (EMS), the Smartbox, which quickly controls all energy assets within a project. Think of solar parks, windmills and charging plazas.
But the EMS can do much more than just control:
- Smartbox continuously reads the prices on the day-ahead, intraday and imbalance market.
- The device determines the optimal deployment strategy every fifteen minutes, and where necessary faster.
- Batteries charge cheaply and discharge when the value is highest.
- Charginginfra smartly switches to price peaks, so that you charge at the most affordable times.
- Sustainable generation is optimally used, or adjusted when the grid requires it.
If something changes on the market, Smartbox will switch within 20 milliseconds. Smartbox takes care of everything, while you have insight into all real-time data via the Smartbox Portal]. Would you like to offer this total solution as energy company or energy installer]? Read all about this innovative EMS or register immediately as a partner.