The free electricity market is much younger than any of the well-known fossil fuel markets; in fact, it is the baby of the energy commodity family. It was born in Latin America in the 1980s and it reached the U.K. in 1990 with the privatization of the U.K.’s power industry. But despite its relative youth, the free electricity market is more sophisticated than the fossil fuels market. This is thanks in part to the advanced technology of electric power systems used to generate electrical energy, but also due in part to difficulties with storage.
Comparing forms of energy
The transportation time for electrical energy is almost equal to the speed of light, making this product unlike any other on Earth. It is also cheap to transport: long distance distribution costs close to nothing. Together, these factors make this product incredibly easy to move. And to top it off, renewable electrical energy is environmentally-friendly and non-polluting.
Fossil fuels, the world’s go-to solution, are also easy to store—they are like packets of ready energy that need only be ignited when needed. But it’s no secret that they are high polluting and relatively expensive to transport.
Because of this, the energy model of the future must combine free electricity markets with renewables. To compete with fossil fuels, these markets must be brought together to get the electrical energy produced from renewables to market—reliably—at a lower market price.
Renewable electrical energy is environmentally-friendly and non-polluting.
Technological energy sources (batteries and solar panels) placed locally (distributed generation), alongside additional information technology, can answer the call, connecting production with the real-time electricity market (grid). But there is no commercial marketplace to sell energy that the consumer generates and does not require; today’s electricity market environment is not yet sophisticated enough to support real-time trading of energy produced or purchased by distributed generation and households.
What’s the bottom line? Even if we had a completely compatible energy source that could produce energy locally, the electricity market would have no trading mechanism for such a source.
At the intraday electricity market, electrical energy is traded one hour ahead, working within the electricity exchange.
Enter intraday trading
The intraday electricity market, which grew from the need for real-time price information from the electricity market, is the closest relative to a real-time market. In today’s intraday electricity markets, electrical energy is traded one hour ahead, working within the electricity exchange.
In the future, the transmission system operator or market operator responsible for the market area (either the country or a coordinated region) should ideally provide the price, which should be calculated about one minute ahead of delivery, and be valid for at least one minute. Price information should be available electronically and fed directly into a device that controls the operational mode of the household.
In a successful scenario, the household would work in three modes:
- Taking energy from the grid.
- Feeding energy into the grid.
- Neutral against the grid, but
- feeding the energy into local batteries, or
- taking the energy from batteries and the solar panel on the roof of the house (i.e., being self-sustaining).
Are we there yet?
Several hurdles must be overcome before this model can operate. For example, the electricity market would need to develop to the point where it can generate real-time market pricing. Power systems stability would need to improve, and suitable energy management technology would need to be developed.
Currently, spikes in demand are satisfied with fossil fuel energy. Thermal power plants are stable, they respond quickly, and they are readily available. In a future where fossil fuels have been phased out, this will cease to be a back-up plan. For a new energy model to work, stakeholders and consumers alike will need confidence in a real-time solution that will see us into the next century.