What is an Energy Market?

Mary McMahon

An energy market is a financial market for energy, along with connected distribution and control systems. This is a form of primary commodities market making it possible for people and companies to trade energy, while secondary markets focus on energy-related securities like stocks and bonds issued by energy companies. Governments monitor energy markets closely, as availability of energy to citizens is a topic of concern in many regions of the world.

Man climbing a rope
Man climbing a rope

Energy markets can cover specific types of energy, like electricity, or methods of generation, such as wind or solar energy. There can be considerable overlap; many utilities responsible for electricity generation, for example, use a range of generation methods. Energy distribution is also closely related, as generating energy is useless without having a method for making sure it reaches the consumer.

The energy market is concerned with getting energy to consumers in a reasonably efficient and affordable way. In some regions, market regulation limits pricing and other activities with the goal of keeping energy prices stable. This has benefits for citizens who need access to a reliable supply of affordable energy, but can be a problem for energy companies, as they may not be able to adjust to changing prices in the industry if they cannot pass increases on to consumers. Deregulation, seen in other regions, allows much more latitude in terms of pricing, as well as how companies distribute and manage energy.

Demand for energy increases over time as populations grow and people rely more on energy to run devices and perform tasks. Being able to meet that demand requires maintaining facilities with high capacity, as well as keeping distribution systems open. The energy market provides a mechanism for buying and selling energy to meet needs. A company with excess in one area can use the energy market to sell it to another with a need for energy, allowing for smooth and uninterrupted distribution across the grid, for example.

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Changes in energy prices can reflect increasing prices for raw material like coal and petroleum, as well as increasing costs for maintenance and facility construction. Monitoring energy prices allows governments to track general economic well being, as well as identifying potential issues like very high winter energy prices that might pose a problem to citizens with low income. Many governments and energy prices also study methods for making energy more sustainable in response to concerns about resource availability and pollution. Sustainability in the energy market can cut costs, as well as preserve resources for future generations.

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