How does the power market work?

The power market is all about maintaining the balance. In order for the system to function, there must be a balance between how much electricity we consume and how much we produce – every year – year round. There are two routes been production and consumption: The trade route and the transport route.

Production

Power is generated from a number of sources. In Norway, the majority of our power comes from hydropower, but other sources are also being developed, such as wind energy, bio energy and gas power In other countries, power is generated from other sources as well, such as coal and nuclear power.  

 

 

Consumption

Norwegian electricity consumption can be divided between industry, businesses, the public sector and private households. Electricity has no shelf life: It must be used the same instant it is generated. Each time you charge your mobile phone, the electricity used by the charger must be produced by a power plant somewhere, so that there is always a balance between how much we put in and take out of the grid. The power balance must be maintained.

 

 

Transport

The generated electricity is transported through the grid to the point of consumption. The grid can be compared with the roads network: Statnett manages the national grid, which makes up the highways of the systems, and from there, it moves on to county and local roads that transport the electricity to your home. As it is not practical to construct several cables next to each other, the grid is a so-called natural monopoly. Each location has only one grid company, and as a consumer you cannot choose your own grid company. As they are monopolies, the authorities regulate the grid companies. The grid is a communal effort, and everyone who produces and consumes electricity pays a grid fee. 

 

 

Energy trading

The price of electricity is determined each day on the Nordic power exchange Nord Pool, located just outside of Oslo, Norway. This takes place as bidding rounds: The power suppliers (the ones who buy power on behalf of their consumers and sell it to you and me) report how much they are willing to pay for the volume needed in the next 24 hours. Power producers then report how much they are willing to sell their electricity for. The bidding rounds continue until these prices meet. The higher the consumption, the more expensive production forms must be phased in, and electricity prices increase. The price is determined by the interaction between supply and demand. The power market is unregulated competition, and as a consumer, you are free to choose which power supplier you want to purchase your electricity from.

 

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