Energy Markets Fundamentals
Expert-defined terms from the Certificate in Energy Trading course at London School of Planning and Management. Free to read, free to share, paired with a globally recognised certification pathway.
**Balancing Market #
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A balancing market is a market where energy supply and demand are continuously b… #
The balancing market is operated by the Transmission System Operator (TSO) to ensure the stability of the grid by procuring additional generation or demand reduction resources as necessary. Balancing markets are essential for integrating variable renewable energy sources, such as wind and solar, into the grid.
**Base Load #
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Base load is the minimum level of electricity demand that must be met continuous… #
Base load power plants, such as coal or nuclear, are designed to operate at a constant output level and provide a reliable supply of electricity to meet this demand.
**Bid #
Offer Spread:**
The bid #
offer spread is the difference between the highest price a buyer is willing to pay for a product (bid) and the lowest price a seller is willing to accept (offer). In energy markets, the bid-offer spread reflects the liquidity and volatility of the market and is an essential factor in determining the profitability of energy trading.
**Carbon Price #
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A carbon price is a cost imposed on emitters of carbon dioxide and other greenho… #
A carbon price can be implemented through a carbon tax or a cap-and-trade system and is designed to incentivize reduce emissions and promote the use of cleaner energy sources.
**Capacity Market #
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A capacity market is a market #
based mechanism designed to ensure the long-term availability of sufficient generation capacity to meet electricity demand. In a capacity market, generators are paid for their capacity to produce electricity, regardless of whether or not they are actually dispatched.
**Day #
Ahead Market:**
A day #
ahead market is a market where electricity is traded for delivery on the following day. In a day-ahead market, market participants submit their bids and offers for electricity production or consumption for each hour of the following day. The market operator then determines the market clearing price for each hour based on the bids and offers submitted.
**Demand Response #
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Demand response is a mechanism that allows electricity consumers to reduce their… #
Demand response programs are used to balance supply and demand on the grid and can provide valuable ancillary services to support grid stability.
**Deregulation #
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Deregulation is the process of removing government regulations and controls from… #
In the energy sector, deregulation refers to the liberalization of electricity and natural gas markets, allowing competition and market forces to determine prices and supply.
**Energy Management System (EMS) #
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An Energy Management System (EMS) is a software application used to monitor, con… #
An EMS typically includes features such as real-time monitoring, data analysis, and automated control algorithms to help organizations reduce energy costs and improve energy efficiency.
**Energy Services Company (ESCO) #
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An Energy Services Company (ESCO) is a company that provides energy efficiency a… #
ESCOs typically offer a range of services, including energy audits, retrofit project management, and performance contracting, to help customers reduce energy costs and improve energy efficiency.
**Futures Market #
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A futures market is a market where participants can buy and sell contracts for t… #
In energy markets, futures contracts are used to hedge against price volatility and provide price certainty for energy producers and consumers.
**Greenhouse Gases #
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Greenhouse gases are gases that trap heat in the atmosphere and contribute to gl… #
The main greenhouse gases are carbon dioxide, methane, and nitrous oxide, which are emitted by burning fossil fuels, agriculture, and industrial processes.
**Interconnection #
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Interconnection refers to the physical and operational linking of electric power… #
Interconnections are essential for ensuring the reliability and efficiency of the power grid and are typically managed by regional transmission organizations (RTOs) or independent system operators (ISOs).
**Intraday Market #
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An intraday market is a market where electricity is traded for delivery on the s… #
Intraday markets allow market participants to adjust their positions in response to changes in supply and demand conditions throughout the day.
**Load Forecasting #
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Load forecasting is the process of predicting future electricity demand based on… #
Accurate load forecasting is essential for ensuring the reliability and efficiency of the power grid and for enabling energy traders to make informed decisions.
**Market Clearing Price #
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The market clearing price is the price at which the quantity of a commodity or f… #
In energy markets, the market clearing price is determined through a competitive bidding process and is used to match supply and demand in real-time.
**Merchant Power Plant #
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A merchant power plant is a power plant that sells electricity into wholesale ma… #
Merchant power plants are typically built and operated by independent power producers (IPPs) and are designed to take advantage of price differences between regional electricity markets.
**Peaking Power Plant #
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A peaking power plant is a power plant that is designed to provide electricity d… #
Peaking power plants are typically gas-fired and are operated only when needed to meet demand.
**Price Signals #
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Price signals are signals that convey information about the price of a commodity… #
In energy markets, price signals can be used to incentivize energy producers and consumers to adjust their behavior in response to changes in supply and demand conditions.
**Renewable Energy Certificate (REC) #
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A Renewable Energy Certificate (REC) is a tradable certificate that represents t… #
RECs are used to certify that a specific amount of renewable energy has been generated and fed into the grid and can be traded separately from the physical electricity.
**Regional Transmission Organization (RTO) #
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A Regional Transmission Organization (RTO) is a non #
profit organization that manages the transmission of electricity in a specific region. RTOs are responsible for ensuring the reliability and efficiency of the power grid and for managing the competitive wholesale electricity market in their region.
**Reserve Margin #
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The reserve margin is the amount of generation capacity that is available to mee… #
The reserve margin is typically expressed as a percentage of the peak demand and is used to ensure the reliability and stability of the power grid.
**Spot Market #
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A spot #
A spot