The use of transmission lines to distribute to end users
In order to “get” power markets, you have to have an understanding of 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. As of now, there is no viable way to store large or wholesale amounts of electricity for later use. The utilization of battery storage for energy is cost prohibitive. As a result, the demand for electricity must be met exactly by the supply in real time. We’ll explain how power markets balance supply and demand in a later post, but for now keep in mind that supply and demand must be balanced.
So how is electricity produced, and how does it reach the end consumer? Electricity is produced by generators, the suppliers of electricity.
Combined Cycle Plants
Generators must do work in order 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 look out for our post on all things generation.)
The Power Grid
Once generators have produced electricity, it must be delivered to the end consumers. Consumers represent the demand, often referred to as load. Electricity is transported and delivered from generators to consumers via the power grid. The power grid is often compared to 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 is moved at high voltages on these transmission lines.
Transformers, Transmission and Distribution
Once the electricity is produced at a generator, it must be transformed to this higher voltage, which happens at a step up transformer. Step up transformers utilize alternating currents to increase voltage.
The electricity is then moved 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.
From the distribution substation, electricity is carried 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 being used in homes and businesses.
These are the basics of electric generation, transmission, and distribution. Look out for more information on power markets and trading in the following weeks!