The Electricity Network
The Transmission System is a very high voltage network that transports electricity throughout Great Britain. Large generation and demand are connected to the Transmission Network. The Transmission System is owned and operated by National Grid.
The Distribution Network comprises a series of lower voltage networks. These align with 14 specific geographical areas where electricity is transported from the Transmission System to domestic premises, businesses and factories. Smaller scale generation (mainly renewable energy such as wind farms) is connected to the Distribution Network, these are called Embedded Generators. Each of these 14 areas is owned and operated by a Distribution Network Operator (DNO) – also known as a Licensed Distribution System Operator (LDSO).
The Retail Market
The retail market is the market for the sale and purchase of electricity between consumers of electricity (customers) and retailers of electricity (referred to as Suppliers). The current trading arrangements allow individual consumers of electricity (domestic premises, small businesses, large businesses etc.) – to choose the company (the Supplier) that sells them their electricity.
The retail market is a dynamic market, as customers can change their supplier as often as they wish.
The Wholesale Market
The wholesale market is the market for the sale and purchase of electricity between Suppliers (to meet the demands of their customers) and Generators of electricity. The current trading arrangements in the wholesale market allow Suppliers to buy the electricity they need to meet their customer’s needs from the generating company of their choice.
How is Electricity Traded?
Generators sell generation to Suppliers who need the generation to meet the demand of their customers. However, it is not only Generators and Suppliers who can contract for and trade electricity.
Suppliers and Generators also try to match their demand and generation, respectively, to their contract levels so that they do not have a surplus or deficit of electricity. This is one of the key objectives of the trading arrangements in encouraging all participants to have contracts covering all of their generation and/or demand.
These surpluses and deficits are referred to as imbalances, and the main purpose of the trading arrangements is to measure these imbalances and to determine the price at which the imbalance energy is to be settled at.
How is the System balanced?
The System Operator’s role is to balance the system in real-time, ensuring that supply meets demand at all times, and alleviates any transmission or delivery issues on the Transmission System (the high voltage network).
The System Operator has a range of services to assist in balancing the system, and will try to balance the system in the most efficient and economic manner possible.
In UK renewable energies are supported through the Renewables Obligation, which was put in place in 2002 to provide incentives for the deployment of large-scale renewable electricity in the UK.
The RO requires licensed UK electricity suppliers to source a specified proportion of the electricity they provide to customers from eligible renewable sources. This proportion (known as the ‘obligation’) is set each year and has increased annually.
In the UK there are 3 obligations:
The RO will close to new generators on 31 March 2017. Electricity generation that is accredited under the RO will continue to receive its full lifetime of support (20 years) until the scheme closes in 2037. Under the Governments Electricity Market Reforms (EMR) a new regime is being established to support the deployment of low carbon technologies – Contract for Differences (CfD). It is expected the CfD will come into place in 2014 and will replace the current RO from 31 March 2017.