An Overview of Electricity Markets

Since the energy market in the Netherlands was liberalized in 1999, electricity prices for large-scale consumers and industry have been determined on public markets. These markets can be categorized by time or characteristics, with the most important examples being the electricity exchange, the over-the-counter (OTC) market, and the organized OTC market.

Electricity exchanges

Electricity exchanges feature anonymous, transparent trading, in which participants bid on energy supply or demand for specific time periods. The market operator then matches these bids. This process, known as market clearing, is based on the merit-order method. Under this method, the order in which different energy sources are deployed is determined based on their variable costs. The merit order is thus used to determine which energy sources are deployed first to meet the demand for electricity. In the Netherlands, the market is “cleared” every hour. Electricity exchanges are primarily useful for trading standard products. Demand for these is high enough to ensure good prices and liquidity. An example of such a market is the day-ahead market, where bids are placed for energy for the following day. EPEX Netherlands operates this day-ahead market in the Netherlands.

Organized OTC market

On the organized OTC market as well, market participants submit bids for the supply and demand of electricity. However, this market is not “cleared” on a time-based interval, such as hourly. In this market, this process occurs continuously, allowing bids to be continuously valued and matched. The matched bids remain anonymous. This organized OTC market is typically used for the intraday market, where electricity can be traded up until shortly before the time of delivery. Based on the financial transaction, the physical exchange of energy takes place immediately. Ensuring the balance between supply and demand at the time of delivery is therefore the responsibility of the balance responsible party (BRP).

At a glance