Question

Who are the key market participants in the electricity market? Their key roles in the market?

Answer 1

In economic terms, electricity is a commodity capable of being bought, sold, and traded. An electricity market is a system enabling purchases, through bids to buy; sales, through offers to sell; and short-term trading, generally in the form of financial or obligation swaps. Bids and offers use supply and demand principles to set the price. Long-term trades are contracts similar to power purchase agreements and generally considered private bi-lateral transactions between counterparties.

Wholesale 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).Supply or demand function simulation
When market participants use the supply function to simulate, market participants can maximize their own profits when they choose both output and price. That is, electricity market participants are not only the recipients of prices, but their decisions will have an impact on market prices, which is inconsistent with the conditions of a perfect competitive market.
When using the supply or demand function simulation, the result of a power market decision has no uniform marginal price, and revenue and expenditure are unbalanced. That is, the competitive equilibrium model cannot be derived from the optimal decision model. The supply or demand function simulation is feasible in the imperfect competitive market, where the market participants take certain bidding strategies to maximize their profits by choosing their price and output. At this time, the market participants have a certain ability to manipulate the market, and the power market settlement can only be based on the actual bid price of market participants.Traditionally, the electricity industry was viewed as a natural monopoly, i.e. an industry in which technology does not permit
multiple non-colluding competitive firms to co-exist profitably. Thus, the solution was tightly regulating the vertically
integrated monopolist with direct public control as the limiting case. The shift from the traditional industry organisation to an
industry requiring a regulation of functionally specialised firms and oversight of competitive markets was inspired by several
reasons. First, technological innovations have significantly reduced the economically efficient plant size for electricity
generation; while in the seventies the optimal scale for electricity production ranged between 600 and 800 MW, by the nineties
the optimal scale had declined to about 100 MW. Second, unbundling was considered necessary to expose cross-subsidies and
improve efficiency via better pricing and stronger incentives for product variety. Third, privatisation and liberalisation came to
be viewed as necessary to overcome organisational inertia and to attract new investment.Unlike many other commodities or goods, massive storage of electricity is in general not affordable. In particular, when we look at the things that an average human being consumes on a daily basis, e.g. food, clothes, oil, gas, medicines, etc., we observe that most of them have the common feature of being stored somewhere and available for human consumption whenever it is necessary.In contrast with these, electric energy has no realistic means to be stored and then delivered under consumer demand. This does not mean that technology to store electrical energy does not exist; battery systems have increased their performance and storage capacity in recent years, and in fact, they are a key element in several areas of the energy market. However, the amount of electrical energy that these type of systems can store is limited, and in general, electricity must be consumed as it is being produced.