Energy Basics and the Power Grid

To understand power markets, you have to understand the power grid, so let’s begin!

Electric Supply and Demand

Energy and power markets are significantly different than other commodity markets for one key reason.

For the most part, there is no viable way to store large or wholesale amounts of electricity for later use. Using grid-scale battery energy storage systems is frequently cost-prohibitive and currently limited, though it's growing in the US.

As a result, the demand for electricity must meet the supply exactly in real time. We'll explain in a later blog how power markets balance supply and demand, but for now keep in mind that supply and demand must balance.

Generation

So how is electricity produced, and how does it reach the end consumer?  Generators produce and also supply electricity.

These include: 

• Nuclear plants
• Coal plants
• Hydro dams
• Solar farms
• Gas plants.

Generators must work to produce electricity, and excluding solar farms, all plants use turbines that drive electromagnetic generators to produce electricity.  (We won’t go into detail about generators here, but next read our post on electricity generation basics.)

The Power Grid

Once generators produce electricity, the end consumers must receive it. Consumers represent the demand, often referred to as load. The power grid transports and delivers electricity from generators to consumers.

It's like a highway system, where transmission lines act as highways, carrying large quantities of electricity.

While transmission lines are good conductors, some loss still occurs when electricity is moved through the lines.  To reduce this loss, electricity moves at high voltages on these transmission lines. 

Transformers, Transmission, and Distribution

Once the generator produces the electricity, a step-up transformer must convert it to a higher voltage. Step-up transformers use alternating currents to increase voltage.

The electricity then moves onto high-voltage transmission lines, capable of carrying electricity over long distances. Once the electricity has been moved closer to the end user, the voltage needs to be transformed to a lower voltage for safer distribution. This happens at a step-down transformer.

Now the electricity is ready for delivery to a distribution substation.

High-voltage power transformer

From the distribution substation, electricity flows on distribution lines, which are the equivalent of residential roads in the highway analogy. From the distribution lines, electricity is stepped down one last time at a residential step-down transformer before people in homes and businesses use it.

These are the basics of electric generation, transmission, and distribution.  Next, explore electricity generation basics.

Next Steps

For more information on the terms in this blog post, check out the Yes Energy Glossary.

Resources we found helpful when putting together Power Markets 101 are available.

Are you already working as an industry professional? Yes Energy offers comprehensive tools and data for energy professionals. Request a demo to learn more!