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How Does a Wholesale Energy Market Work?

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Running a business comes with bills and a lot of them.  A major part of those bills is electricity. You’re probably wondering what the wholesale energy market has to do with you? The truth is the wholesale energy market affects you a lot more than you think. Keep reading to know more.

What is the wholesale energy market?

The wholesale energy market is the buying and selling of energy between energy generators and those that resell the energy. Energy generators sell energy at wholesale prices to energy suppliers. Energy suppliers such as electricity marketers, competitive power providers, and utility companies then resell this energy at higher prices to their customers.

How does the wholesale energy market work?

The wholesale market consists of three parts, the generators of energy, the transmission of the energy, and the end consumer. Electricity is passed along this chain with the reseller carrying out the transmission of energy to the consumer. Due to the deregulation of the energy market, consumers are provided better and more reliable service, increased efficiency of the transmission, and far more transparency about energy prices from the resellers.

What affects the prices of the wholesale energy market?

The wholesale business energy market carries great variations in prices. This makes it hard to create an accurate budget of what energy prices may be. The prices of wholesale energy are affected by things such as consumer demands, energy supply available, environmental disasters, and even geopolitics. All of these factors consequently affect the cost of energy that reaches the consumers.

Renewable energy and the wholesale market

Due to changes in how energy is produced – the advancement in renewable energy has made it possible for smaller businesses to become part of the wholesale energy market. By creating energy from renewable sources such as solar panels, companies can then sell this energy to electricity companies.

Buying wholesale energy

For the majority of businesses, it is not possible for them to buy electricity at wholesale prices. Some large companies that use vast amounts of energy can attempt to buy their energy from the wholesale market. Most companies and retailers must purchase their energy at wholesale prices.

What this means for retailers and small businesses is that they should be more aware of the retail market for energy as opposed to the wholesale market. The retail market is incredibly vast, with a wide number of energy suppliers and a range of prices to choose from; this can make choosing the right supplier a difficult task.

Will wholesale prices affect end-consumer energy prices?

Wholesale energy prices can not affect the prices of fixed tariffs on your electricity plan – the unit rate of electricity will not change until the end of your contract. The changes in energy prices, however, do affect variable tariffs, which usually mean an increase in the costs of your electricity bill.

While you may not be able to keep track of the changes in prices in the wholesale energy market, it is important to know how it functions. Having an awareness of the wholesale energy market can make it easier to monitor the retail market and choose the best option energy supplier for your business.

Tommy Williamson did his degree in psychology at the University of Edinburgh. He has an ongoing interest in mental health and well-being.

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