Many people think that electricity is the most important thing we need for survival after water and food (and why not, it is true). They believe so because a number of appliances we use, work we do, and food we produce is totally dependent on the availability of electricity. Just cut off the power of your home for a day and see for yourself how crippled you feel. Needless to say our dependency on this gift of science has increased so much that now we are heading towards the shortage of the electricity. Anyhow, let us have a look at how this whole system and the wholesale business electricity operates.
In most cases, the electricity generated by a power company is not directly delivered to the consumer. Like most resources, one megawatt (the most common measure of electricity, sufficient to power approximately 1000 homes) is bought and sold lots of times before it finally reaches the consumer. Transactions like these are part of the “sales for resale” and are what constitute the wholesale business electricity market.
Anyone who can generate power after obtaining an essential approval, connect it to the grid and then find a buyer, can join this wholesale electricity market. Some of these members include wholesale electricity suppliers and marketers who are connected to utilities, independent power producers (IPPs) who are not connected to any utilities and also the traditionally vertically integrated utilities who sell excess generation. There is competition between all these participants in the wholesale market.
To take part in the wholesale market, you do not need to be able to generate electricity or supply to consumers. Like several other traded items such as oil and stocks, there are individual traders and power marketers who purchase electricity and then simply resell it.
Providing energy for businesses as well as households, the electricity market is considered to be one of the largest industries in Australia. The various sectors dependant on the wholesale electricity market include manufacturing, agriculture, mining, transport, water services, and other commercial services. The highest consumption of wholesale electricity is done by the commercial services sector.
There is a split structure between regional wholesale markets however. The National Electricity Market (NEM) provides wholesale electricity to the Territories and States of Southern and Eastern Australia. This includes New South Wales, Queensland, Victoria, Tasmania and South Australia.. This wholesale electricity market generates electricity of around two-hundred terawatt hours on an annual basis. This indicates that it supplies around eighty percent of electricity consumption to different regions of Australia. However, the NEM is not connected to the electricity consumption of the Northern Territory of Australia and the Western Australia since both these regions have their own systems of electricity supply as well as regulatory arrangements.
Once the retailers have access to the electricity provided by the NEM, they resell it to households and small or medium businesses. However, large consumers prefer to directly purchase electricity from the NEM so that they can avail the benefit of cost-effectiveness by purchasing electricity from the wholesale market.