How does Day-Ahead Trading of Electricity work?
Day-ahead trading refers to the trading of electricity for the following day, which takes place for example on EPEX Spot in Paris (Spot Market of the European Power Exchange), on EXAA in Vienna (Energy Exchange Austria), or in OTC (Over-the-Counter Trading) via contracts negotiated bilaterally. A less frequently used term for day-ahead trading is auction market.
Procedure and Products of Day-Ahead Trading
EPEX Spot, i.e. the Spot Market of EEX, is divided into four different market regions: France, Switzerland, Germany, and Austria. For the individual market regions, trading differs further according to the respective Transmission System Operators. In the German and Austrian markets, the market participants must submit their bids for the auctions for the following day by noon each day. The market results are published at 12:40 p.m. every day and market participants are informed about the success of their orders. Starting at 3 p.m., it is already possible to carry out intraday trading for the following day.
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Trading and Deadlines on Electricity Markets
Trading is anonymous and takes place on all days, including public holidays. Day-ahead trading usually involves trading full hours, although some standardized block bids such as the classic base or peak load or more unusual blocks such as the morning block are also offered.
The intersection of the demanded and the offered quantity finally results in the market clearing price for the respective product of day-ahead trading (for example for a certain hour of the following day or a block). This market clearing price, which is basically the last bid accepted, is then paid by all market participants for the respective product. The market clearing price is the basis of the merit order effect.
The minimum quantity that can be traded is 0.1 MWh. A price range is defined for day-ahead trading, which lies between -500 €/MWh and 3,000 €/MWh. However, it is also possible to trade freely defined blocks beyond the hourly blocks. In the case of block bids, the quantity may not exceed 400 MW and one participant may only trade 100 such blocks per day. The Phelix (Physical Electricity Index) is calculated from the average of all hourly contracts traded on the day-ahead market on a given day.
Development of the Day-Ahead Exchange Market
The day-ahead market has a strong cross-border element. However, structural problems have arisen recently, such as the cross-border interconnectors, which have led to the partial removal of this element.
For example, the German day-ahead market was linked to Austria and Luxembourg via a common bidding zone, but the link to Austria was severed on 1 October 2018. The reason were the insufficiently developed border interconnection points. The network interconnectors between Germany and Austria are not strong enough to absorb peak loads from Germany. This led to an increased use of system services and a rise in the associated costs on both sides. Loop flows put additional strain on the grids in Poland and the Czech Republic - the costs of system services also rose so that ACER advocated for the electricity price zone separation.
As before, however, bid clearing is still carried out with other European countries, namely France, Belgium, the Netherlands, Switzerland, and the United Kingdom. The cheapest bids on the national day-ahead markets will be used for the needs of all 15 coupled markets until the physical transport possibilities between the states’ cross-border interconnectors are exhausted. This ensures using the cheapest suppliers and obtaining a uniform price on the national day-ahead markets.
In 2019, the trading volume of the day-ahead markets on EPEX Spot was at 506 TWh. The market area of Germany had the largest share and accounted for 226 TWh.
For further details: EPEX SPOT publishes the current prices and market data of day-ahead trading on its website.
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