In the analysis that follows, we will try to show you the mechanism through which the electricity price we pay is “constructed” on a daily basis. It is shocking in what economic-business labyrinths the governments of the EU member states have lost themselves, in order to justify the unwarranted, that is to say, to disappear the shame of the country’s non-energy self-sufficiency, for the benefit of private interests.
The wholesale electricity price each day is set on the previous one. Energy suppliers declare to the Energy Exchange the quantities that all consumers in each country will need, per hour in the next 24 hours. The demand is different every hour, and in every country, since consumption is higher in the morning, as the whole economy works at full capacity, while it is lower in the evening hours.
Accordingly, producers submit hourly Energy bids to meet demand. Zero-price renewables enter the system as a matter of priority, having ensured through contracts guaranteed prices regardless of the market price. At the beginning, the cheapest offers with the corresponding conventional units (gas, oil, lignite, etc.) are accepted. After the cheap units cover whatever part of the necessary Energy they can, the electricity offers from the more expensive units begin to be accepted until it closes the next day’s estimated demand
The so-called System Limit Price (STP) per hour is the most expensive offer that a producer will give to cover the last MWh needed by the system.
For example, if the system still needs 2 MWh to complete the required Energy, e.g. for the period 8-9 in the evening of the following day and the only offer it has is at 300 euros per megawatt hour, then the Limit Price of the System for that day hour will be set at 300 euros. The Final Limit Offer per hour is the price at which all electricity producers will be paid regardless of the price at which they offered their own Energy. So the elephant is in the room.
This is how the daily market on the Energy Exchange works. There is also the balancing market. It works in real time. If it is found that the previous day’s consumption estimates were not correct and more Energy is needed the next day, the Operator-Administrator requests more Energy from the Producers, which the providers offer at 10 times the prices they had given the previous day ! That’s where the game begins!
That is to say, the previous day someone had given, for example, 50 euros per MWh for the hours of 8 to 9 in the evening, while when he was asked to give additional MWh the next day, because the Administrator underestimated the demand, since the next day was fully cloudy and there was no wind at all , so the RES did not work and their remaining MWh are now covered by conventional units, such as with gas!
But since the system needs these megawatt-hours, it pays them as much as – just enough to prevent a blackout… that is, 10 times more… this price is called the equalization price, with this tenfold price the marginal price is cleared and this is passed on to retail with the profit margins…..and then the familiar readjustment clauses are triggered….
If we had batteries and stored the excess green energy from the previous day, then the next night from 8 to 9 X producer would not come and sell you megawatt hours of gas at 10 times the price, because the extra demand would be covered by the battery…
Did you understand why the five big players in the energy market did not want the batteries in some EU member states, since all their surplus profits come from the equalization price, i.e. the very expensive price given by natural gas? “
