Role of Wholesale Energy Pricing

The Role of Wholesale Energy Pricing in Getting More Out of Renewable Energy

Wholesale energy is often a popular term referring to both the sale and purchase of various energy commodities, predominantly electricity, in the wholesale sector by various energy producers and power marketers. Other key players in the wholesale energy marketplace include large consumers, financial intermediaries, and power marketers. Energy is traded in distinct forms such as primary energy (energy goods), secondary energy (electricity goods), energy feeds (gas and oil), and power products. Most of the wholesale markets rely on the wholesale suppliers of raw materials such as gas and oil, who buy the energy products in large quantities at wholesale prices then sell them to retail and industrial buyers at retail prices. It is this process that gives the wholesale energy sector its considerable size.

 

The wholesale energy market

has emerged due to increased levels of demand in developed nations for electricity. Rapidly increasing urbanization and industrialization in developing countries have led to growing energy needs and increased use of electricity and other fuels in vehicles, communications and lighting, manufacturing and farming equipment, and in-home and business heating and cooling. Although the supply of fuels remains insufficient, the pace at which electricity is being purchased and sold adds to the overall demand for energy. The growth rate of the wholesale prices of fuels has also been increasing. This has made it difficult for many energy providers to recover their costs and pass on the increase in prices to customers.

 

In addition to the wholesale energy market

there is also a large retail sector, which buys power purchase agreements (POAs) from manufacturers of electrical power generators and fuel cells, and sells them to end-users, often through a power purchase agreement (PPA). A major portion of these purchases is in the form of long-term contracts that guarantee minimum volumes of power or fuel to be supplied over a period of years. Wholesale buyers of PPA’s often need to acquire more expensive equipment and technology to produce sufficient quantities of electricity and gas to meet demand. This further drives up the price of these items, making it more expensive for end-users to purchase them.

 

As a result, many consumers are not able to pay

the current energy costs and buy electricity from alternative sources. Governments in several countries have taken measures to curb this trend by putting in place a tax or a quota on the amount of fuel and electricity imported from other countries. In response, some manufacturers of wind energy generators, solar panels, and other green technologies have moved production and manufacturing offshore to countries that have cheaper labor and larger capital infrastructures. By doing this, they have been able to reduce their overall cost of goods sold while increasing the amount they can charge for their goods. As the wholesale energy market has become more competitive, there has been a move away from the buying of large quantities of power from countries outside the USA and toward local consumption.

 

One such example is Germany

The German government last year approved a plan that will see several new wind energy generating plants built in the nation. These plants will produce enough electricity to replace the country’s regular electricity needs. While this may seem like a step in the right direction towards reducing the amount of electricity produced by wind generators and other types of renewable energy generating systems, it is important to remember that the wholesale energy market does not work in a vacuum. Rather, it must be considered with other factors.

 

In particular, wholesale energy prices

are based upon the cost of energy production in various nations. While it may seem like a good idea to invest in a German wind turbine for your home, you should be aware that the wholesale prices of German wind turbine energy are affected by the overall cost of manufacturing in that nation. For instance, if there are costly overheads in Germany, the cost of production will almost certainly be higher than it would be if there were no cost barriers. In addition, wholesale prices also depend upon the quality of the components used to build the turbine. A badly made turbine can result in lower levels of output and, thus, lower wholesale energy prices.

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