Maximize the Profitability of Your Energy Assets

From the use of household appliances to the operation of industrial machinery, we are all connected to the power grid, day after day. Electricity markets ensure a secure and reliable electricity supply that meets consumption needs.

When electricity travels from production plants to our homes and businesses, a lot of work goes on behind the scenes to ensure that supply is always in balance with consumption.

To prevent the national electricity grid from collapsing, it is essential that, at each instant, the power generated is equal to the power consumed. To ensure this balance, it is necessary to plan properly and in advance, which defines the total volume of energy to be produced to meet consumption. This planning involves forecasting the expected consumption, calculating the amount of energy that each generating plant should generate and ensuring that the grid configuration allows electricity to reach consumers at all points, without constraints. This ensures safe and efficient operation of the power grid.

This work is carried out through the Iberian electricity markets and the various entities responsible for their management.

OMIE's daily market is the first step in the daily programming of the electrical system to ensure the balance between production and consumption of electricity. Producers, traders and large consumers submit their sales or purchase offers on a daily basis, specifying the price and desired volume for each hour of the next day.

OMIE organizes the sales offers in ascending order of price and the purchase offers in descending order, creating two curves. The intersection of these curves defines the market encounter price, where all offers to the left of the intersection point are approved, and those to the right, refused.

Producers with approved offers must generate the quantity offered, receiving the price against the market. Buyers whose offers are approved receive the energy at the established price. The price is volatile and varies hourly, influenced by factors such as electricity consumption, production from renewable sources, and natural gas prices.

The image provided illustrates this dynamic, showing the intersection of the sell and call curves and the market price point

Price volatility in the daily market affects the stability of cash flows and increases the investment risk and financial management of electricity producers, traders and large industries. The electricity futures market, managed by OMIP, offers an alternative, allowing the negotiation of contracts that fix prices for long periods.

These contracts can involve physical delivery or be purely financial, with a duration ranging from days to years. Producers, traders and industries find contracts appropriate to their consumption or production profile, ensuring fixed and stable prices, which facilitates operational and financial management, in addition to encouraging sustainable investments.

The system service markets, managed by the Global National Electricity System Manager, ensure the stability and reliability of the electricity grid in the short term. This market allows for an instant balance between the production and consumption of electricity, minimising the risk of blackouts with both economic and social consequences. Although the daily market defines transactions based on forecasts, variations such as those caused by weather conditions can generate deviations in wind and solar production. To correct these deviations, financial incentives are offered to producers and consumers who adjust their production or consumption in real time, mitigating the deviation and ensuring the balance of the system.

A PPA (Power Purchase Agreement) is a bilateral contract for the purchase and sale of electricity, which can be physical or financial, between suppliers/consumers and electricity producers. In it, the terms and conditions of the transaction are defined, such as the term of validity, sale/purchase price, delivery profile and guarantees, among others.

Advantages for the Producer:

Offers predictability of cash flows, essential for financing plants under development, facilitating more favorable financial conditions.

Advantages for the Buyer:

It allows you to set prices in the long term, giving visibility to energy costs and reducing financial risks without compromising competitiveness.

When the Producer is a renewable energy plant, the buyer can obtain guarantees of origin, contributing to the sustainability goals of their company/industry.