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How does trading work in the energy sector and is it suitable for business?

Updated: May 13

How does trading work in the energy sector - Digren Energy

Energy trading in Ireland is increasingly becoming crucial for companies to help minimise energy costs and gain a competitive advantage.

In this article we will look at how energy trading works, benefits for business and how companies can use it to drive growth and sustainability in an evolving market.

How does energy trading work in Ireland?

Energy trading in Ireland is based on a multilateral trading system. This means that a number of transactions take place between different energy suppliers and consumers.

These transactions take place on the Irish Electricity Market (I-SEM), which is the only market operating in Ireland.

Key markets for I-SEM

Day Ahead Market

Day ahead market - digren energy

Market participants can buy and sell electricity for the next day. This transaction takes place before the day of delivery of the energy, i.e. one day in advance, allowing buyers and sellers to plan and cover their energy needs in advance.

In the day ahead market, energy prices are determined through an auction system where buyers and sellers bid and accept prices for each hour of the next day. This allows for effective and transparent competition in the market and ensures that prices adequately reflect real-time energy supply and demand.

Intraday Market

Intraday Market - Digren Energy

The main objective of the Intraday market is to manage imbalances between energy supply and demand in real time. For example, if a buyer needs more energy than it bought in the day ahead market, it can go to the Intraday market to purchase the additional quantity needed. Similarly, if a seller has excess energy, he can sell it in the Intraday market to avoid waste.

Activity in the Intraday market is driven by unforeseen factors affecting energy supply and demand, such as sudden changes in weather, power grid outages or fluctuations in renewable energy production. This market provides greater flexibility and adjustability to ensure a stable and secure supply of electricity on the island of Ireland in real time.

Balancing Market

Balancing Market - Digren Energy

The Balancing Market is activated when imbalances occur between the supply and demand of electricity in real time, meaning that the amount of energy produced does not match the amount demanded.

The Balancing Market process involves the electricity system operators buying or selling power in the market to balance imbalances and ensure the stability of the electricity system. This is done through an online auction system, where energy prices are determined on the basis of supply and demand, and incentive mechanisms are put in place to encourage greater participation in the market and ensure a reliable and secure energy supply.

What are the benefits of energy trading in Ireland?

Lower energy costs: Businesses can obtain competitive energy prices, as operators can access offers from domestic and foreign suppliers.

Increased operational efficiency: Allows businesses to plan their operations more efficiently by having access to lower tariffs and more predictable prices. For example, save production costs and improve preparedness for an eventual increase in energy prices.

Buy more responsible: Businesses can buy renewable sourced energy, enabling them to improve their public image and help the environment.

The disadvantages of the energy trading sector for business?

High volatility: Due to supply and demand uncertainty, energy market prices are often volatile and difficult to predict. This can make it difficult to allocate resources in long term.

Regulatory disadvantages: The energy sector is governed by a number of regulations that can be complicated for small businesses to comply with. These regulations often represent significant costs for businesses.

High initial investment cost: To participate in energy trading, businesses need to have a large initial investment in equipment, software and resources.

Credit risk: Due to the volatility of the energy market, buyers often take large risks when purchasing energy, which creates significant credit and contract default risks.

Is trading in the energy sector suitable for business?

Energy trading can help improve companies' energy optimisation. For example, professional long-term energy procurement contracts can help to reduce cost and optimise energy in any business.

Energy trading can also help promote the transition to clean energy. It also provides a way to diversify energy sources with the option to buy and sell energy from different sources.

How can Digren Energy help your business?

Contact US - Digren Energy

As an energy consulting in Ireland. At Digren Energy we can help you to understand the energy market, identifying opportunities to purchase energy at competitive prices, advising on clean energy implementation.

Would you like to know more? Contact us.

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