The transformation of the power sector lies at the heart of the transition to a low-carbon society. An in-depth knowledge of the relevant technology, physics, players’ strategies and business models, market mechanisms, regulations and framework conditions is crucial to realise this transformation efficiently for society as a whole. THEMA is a leading consultancy firm with expertise covering all aspects of the Nordic and European power markets.
The power market is undergoing rapid change driven by climate policy, increasing trade and new technology. Climate policy is at the root of many of the changes we are seeing in the power market, both through the effects of the carbon market, extensive investments in renewable energy, the closure of coal-fired power plants and the focus on energy efficiency. At the same time, the European power market is becoming more integrated through interconnectors and coupled markets that transcend national borders.
We see rapid technological progress in the development of both various renewable generation technologies, and energy storage. Technological development is also contributing to increased digitalisation throughout the energy system. The digitalisation of the power system is extending into people’s homes and increasingly allowing consumers to respond to short-term price signals.
THEMA is built on expertise that covers all aspects of the electricity market. To help market actors and public authorities negotiate the transformation of the energy system, one needs a thorough understanding of the issues different actors face, how the markets work and the relevant regulatory framework.
Consultancy and analysis
Our advice and reports combine leading expertise in power companies’ strategies, the regulatory environment and market design, as well as the drivers of market developments:
- Strategy and business development: In our strategy work we combine expertise covering both the subject-matter and the process, and base the strategy process on the use market models and an understanding of the regulatory and political framework.
- Regulation and market design: When we advise public authorities and industry organisations on the design of effective regulations and market design, we build on our knowledge of how market players will respond and of how the markets work.
- Market analysis: Our market analysis and price forecasts are based on a solid understanding of the market, sophisticated modelling tools and extensive databases.
The power market provides a market-based system for power trading. It is split between the wholesale and retail markets. In the wholesale mark, power is primarily traded using various European power exchanges. The wholesale market is itself comprised of several organised markets in which market actors place bids and offers, and which determine the market price:
- Spot/day-ahead market
- Intraday market
- Balancing market
Market actors can also buy and sell power using bilateral contracts for physical delivery that specify the price, volume and period. In addition to these markets for physical delivery, there also exist financial markets for power derivatives. It is important for market actors, network companies and public authorities alike to understand how these markets work and are interconnected.
In the retail market, business and consumers enter into contracts with power suppliers who compete with one other to supply power. Power suppliers generally purchase power in the wholesale market and then market this power through various retail tariffs, potentially bundled with additional services.
Market design and regulation
Electricity is an unusual commodity because power markets are necessarily closely intertwined with the physics of the power system. Power is transmitted from generators to consumers via the electricity network. When network capacity is scarce, the market design used needs to account for this scarcity, for example through the use of multiple bidding zones. The market design covers not only how prices are determined in each of the various markets, but also how they are communicated to different actors and how market entry is regulated.
The design of network tariffs is also important, with differences in the extent to which tariffs support socially efficient investment and provide incentives for the efficient utilisation of available network capacity by encouraging generators and consumers to adapt their use accordingly.
To keep the power system in continual balance, system operators need to ensure that generation and consumption and equally matched. Markets can support system balancing in part through the creation of balanced generation and consumption plans but also by providing system operators with opportunities to adjust generation and consumption at short notice.
In addition to the price, the design of grid tariffs, markets and regulation impact the utilisation of existing generation capacity and demand-side flexibility, the type and location of investments in new generation capacity, consumers choices regarding energy solutions, energy efficiency, electrification, the utilisation of network capacity, investments in distribution and transmission network, investments in interconnectors and trade between regions, and the efficiency with which system operations ensure the security of supply, among other things.
THEMA’s experience and products allow actors to understand how the changes we observe in the power market will affect them. We offer a wide range of market analysis products and services, from price forecasts for the Nordic and European power markets, through investment support and PPA analysis, to advanced, tailor-made modelling solutions.
Our price forecasts and market analysis are supported by extensive databases and sophisticated modelling tools. Our proprietary models, including our renowned power market model, TheMA, are used both to develop our own price forecasts and, under license, by several European market actors.
See also Consultancy.