UK Electricity Trading

UK Electricity Trading - UK Market

How does trading electricity work in the UK - Spot trades and Counter party trades

Electricity is now freely traded in the UK using different exchanges. Power Exchanges such as UKPX (a.k.a. UK Power Exchange, now APX) are often used for short term trades (spot trades), and other exchanges are sometimes used for electricity futures. UKPX is the most popular short term trading exchange.

Electricity companies also trade with each other. These are often called counter party trades and are bi lateral - when there are two counter parties - a buyer and a seller.

Why were the New Electricity Trading Arrangements introduced - NETA?

To make the electricity market more competitive and give a better deal to the UK consumer.

In all, this has generally worked, and consumer prices have been reduced across the board.

What is a short term spot trade on UKPX Exchange

Electricity companies may not have enough electricity to service their customers at short notice e.g. in three hours. So they need electricity at short notice to supply to their customers - and will have to buy electricity from someone who will sell it. UKPX is an exchange who will match buyers and sellers at short notice.

Will the electricity companies customers experience blackouts if ther're suppliers don't buy enough?

No. It just means that the electricity company will have supplied more than they bought and will have to pay for the extra they supplied, calculated using the balancing mechanism by OFGEM. This electricity is often very expensive.

The 'balancing mechanism' calculates the extra electricity and then a bill is issued to electricity companies from the Electricity regulators OFGEM.

Incidentally, many electricity companies in the UK are now covered by Sarbanes Oxley as they are registered with the NYSE. Click here for more information on Sarbanes Oxley.

How does this 'balancing mechanism' work

There are various meters on the National Grid, monitoring where electricity is passing. Using these meters, the regulator can calculate what the region actually used and then charge the company the difference of this and what they bought.

What is an electricity counter party trade.

This is when a company e.g. Scottish Power agrees to buy electricity from another company e.g. PowerGen. They then enter into a binding contract.

This electricity is often traded in very large amounts. E.g. Scottish Power may strike a contract to buy Mega Watts of electricity per day for tow months. This contract will provide a supply for many of their customers, however short term peaks in demand can be met by buying from the short term markets e.g. UKPX

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