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The wholesale electricity price is the basic purchase price for electricity which is traded on the exchange and over-the-counter.
Electricity, like many other products, is traded both on the exchange and over-the-counter. The price on the exchange is set at the point where supply and demand come together. The installations generating electricity with the lowest variable costs are dispatched first on the electricity market (merit order). This minimises the cost of supplying electricity. The price of electricity on the exchange generally corresponds to the variable costs of the most expensive generating installation in use. This installation is known as the "marginal installation", while the price on the exchange is the "marginal cost price".
Standardised products are bought and sold in a transparent process on the exchange, which for Germany are the European Energy Exchange EEX in Leipzig and the European Energy Exchange EPEX SPOT in Paris. However, companies continue to primarily conclude supply contracts with electricity producers directly. Trading with these off-exchange supply contracts is known as "over-the-counter" (OTC). This can be compared to a farmer who can either offer his fruit and vegetables at the nearest wholesale market or enter into contracts directly with supermarkets.
Bought today, supplied on time
Exchange and OTC trading have different time horizons. Trading takes place on the futures, day-ahead and intraday markets. Prices of these trading products may vary considerably.
On the futures market, companies can agree on deliveries up to six years in advance. These products are called futures on the exchange, while in over-the-counter trading, they are known as "forwards". To put it another way, this means that electricity traders can buy or sell their electricity today for the years to come, which enables them to plan ahead with certainty.
The spot market consists of the day-ahead and intraday market. Electricity is traded either for the next day (day-ahead) or the same day (intraday), allowing traders to plan their obligations over a longer period.
As the time of the agreed electricity supply draws closer, it gets easier for market participants to estimate the actual generation and real consumption. To minimise discrepancies or surpluses and employ the available generating installations cost-effectively, after close of the day-ahead auction market participants can trade in electricity on the intraday market at very short notice for time periods of between a quarter of an hour and blocks of one hour. Until July 2015, intraday trading on the exchange ended 45 minutes before supply ("gate closure"). This time was first changed to 30 minutes and now the lead time in Germany for trading within a control area is five minutes. The 30-minute deadline still applies for trading between control areas. Trading across the German border has to be completed 60 minutes before supply.
Although trading on the electricity exchanges only makes up around 20% of the total trading volume, the electricity prices on the exchange are regarded as an indicator for the general wholesale prices, which is why the SMARD website shows the day-ahead electricity price on the exchange for the market area of relevance to Germany.
Since 1 October 2018 this area has included the Federal Republic of Germany and Luxembourg. A bidding zone means that the same electricity price on the exchange applies throughout. Moreover, the bidding zone is coupled with the electricity markets of 15 other European states, so the electricity price on the exchange of the day-ahead market is calculated in a joint, coordinated process for the coupled markets. In this process, those offering and purchasing electricity place their bids in their own national day-ahead market zones (also called price or bidding zones).
The day-ahead prices from the previous day's electricity trading is shown in the market data visualssection. Users can select the time period for which they want to see the prices for the market area of Germany and Luxembourg or another region, such as Austria and France.
The graph shows the wholesale prices of the common bidding zone of Germany, Austria and Luxembourg up to October 2018.