How you can benefit from purchasing electricity on the spot trading

How you can benefit from purchasing electricity on the spot trading
November 16 06:08 2020 Print This Article

Are you looking for ways to reduce your company’s energy bills? Then buying electricity on the spot trading is an interesting alternative for you. Find out more about how you can use this to reduce your electricity bills and gain a competitive advantage. Because what has long been part of everyday life for buyers in large-scale industry is also an interesting option for many small and medium-sized companies.

How is the electricity price created?

At the European Energy Exchange (EEX) in Leipzig, the largest electricity exchange in Europe, supply, and demand determine the electricity price in Germany. Energy groups, electricity providers, and companies buy or sell fixed amounts of electricity for certain periods. In contrast to share trading, private individuals are not allowed to participate in direct electricity trading. Depending on the delivery period, the electricity is either traded on the spot or futures market.

What is the futures market?

On the futures market, the price reflects long-term expectations. Electricity buyers and bulk buyers are planning here for years to come and are already buying future electricity quotas at fixed prices today. Buyers can thus protect themselves against short-term price increases and ensure the basic supply of their companies.

The disadvantage of long-term purchasing: The prices on the futures market contain risk premiums, as many factors influencing the price are not yet known and assumptions must be made. If these expectations do not materialize and the stock exchange price drops more than expected, for example, the purchasing company no longer benefits from this in case of doubt, since the purchase price is already fixed in the long term.

What is spot trading?

Electrical energy is offered and sold at short notice on the spot trading. The lead time on this market, also known as day-ahead, is usually around one day. The electricity is offered in time blocks of up to 24 hours or individual hours. Depending on the short-term supply and demand, the prices vary significantly.

However, if you buy at the right time, you can save money compared to pure futures market procurement. The spot trading enables energy suppliers to close short-term bottlenecks or to offer overcapacities because electricity can only be stored economically with difficulty. Experts describe the spot trading as a particularly “honest” market: supply and demand are easy to predict because of the short-term nature, and the prices do not include any risk premiums.

Why is electricity often cheaper on the spot trading?

Sun and wind have a major influence on the prices on the spot trading. Because with the expansion of renewable energies in Germany, a large part of electricity production depends on the weather and can therefore only be planned to a limited extent.

A look at our graphic shows this very clearly: On sunny days, a lot of energy from photovoltaics is available, especially at lunchtime. The prices on the spot trading are falling because less expensive electricity from conventional power plants is required to meet demand. With the increasing expansion of renewable energies, this price-reducing effect will increase further.

Can my company also benefit from purchasing electricity on the spot trading?

Yes. If you buy your electricity at favorable hours on the spot trading, then you have the chance to reduce your electricity price again significantly.

Incidentally, this also applies to small and medium-sized companies that have so far only made little use of the opportunities of spot trading. Our tip: Put an experienced energy supplier at your side who will do the purchasing for you and know when electricity can be bought cheaply on the spot trading.

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Dominic Ortiz
Dominic Ortiz

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