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Concept
Electricity market
Summary
In a broad sense, an electricity market is a system that facilitates the exchange of electricity-related goods and services. During more than a century of evolution of the electric power industry, the economics of the electricity markets had undergone enormous changes for reasons ranging from the technological advances on supply and demand sides to politics and ideology. A restructuring of electric power industry at the turn of the 21st century involved replacing the vertically integrated and tightly regulated "traditional" electricity market with multiple competitive markets for electricity generation, transmission, distribution, and retailing. The traditional and competitive market approaches loosely correspond to two visions of industry: the deregulation was transforming electricity from a public service (like sewerage) into a tradable good (like crude oil). As of 2020s, the traditional markets are still common in some regions, including large parts of the United States and Canada.
The initial idea of a simple wholesale electricity market restructuring ("energy-only", replacing the regulated electricity price with the market-defined one) did not work out, thus the competitive wholesale electricity market structure is quite complex and typically includes (in addition to two markets for the electricity itself: wholesale – all of these use offer caps in some form – and retail):
ancillary services markets for the services not directly related to producing electricity and thus providing no income in the "energy-only" model, but essential for overall operation of the system (frequency control market, voltage control and reactive power management, etc.);
capacity market or some other mechanism providing an income stream necessary to build and maintain additional generation units ("reserves") for the worst-case scenario. On a typical day, these units are never called upon (not "dispatched") and thus produce no revenue from the sale of electricity either;
cost-based market with audited costs replacing producers' bids in places where the local market power is a concern (e.
Official source
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