Wholesale Electricity and Emissions Trading

The European electricity sector liberalization, introduced through the Directive 96/02/EG of the European Union (1996), entailed a separation of the main parts of the electricity value chain: generation, transmission, distribution and retail sup-ply. In Germany, the Energy Industry Act (Energiewirtschaftsgesetz, EnWG, 2005) regulates the electricity sector and defines the rules of operation and competition for all firms and organizations engaged in power generation, transportation and supply.

The generation and retail supply parts of the electricity value chain are subject to competition. On the generation side, power plant operators (generators) compete for selling power to the wholesale markets. On the retail supply side, load serving entities (LSEs) buy on the wholesale markets the electric power that they need to serve their retail customers. One central marketplace where trades between generators, load serving entities and intermediaries are settled is the power exchange. Exchanges usually also offer derivative products that help market participants hedge their risks. These marketplaces are outlined in Sect. 2.1.1.