Why do we trade electricity, and how does it help us keep the lights on?

At National Grid ESO we operate the electricity system in real-time to keep Britain’s lights on. But we also work in advance, trading megawatts in electricity markets to help balance supply and demand. That’s where our energy trading team comes in – read on to find out more about its pivotal role in keeping the country’s power flowing.

As the electricity system operator for Britain, we keep electricity moving safely around the country from where it’s generated to where it’s needed.

Our control room uses tools like the balancing mechanism to do this – and it’s supported by teams of experts who are planning from months ahead right up to real-time.

Our energy trading team is central to this process. They sit outside of our control room, but work closely alongside it on the front line of electricity system operation.

While energy traders are not balancing the system in real-time, they provide a crucial function to support our control room – particularly if demand or generation don’t happen as we forecast.

Meet one of our energy traders in our day in the life series

They’re trading on a daily basis with power sources and over interconnectors, buying or selling electricity ahead of time to manage key system properties and make sure the system can be operated in the safest, most secure and economical way.

This is what we call ‘forward trading’, and it happens in a part of the electricity market before our control room and the balancing mechanism get involved.

The forward market is where around 90% of energy trading takes place to resolve Britain’s power needs. It’s where energy suppliers, generators, traders and customers determine – based on our forecasts – how much electricity is going to be used and generated, and arrange payment for it.

All of these actions are about keeping electricity flowing safely around the country, and setting our control room’s real-time operations up for success

It’s in the final five or so per cent of the market where our control room steps in as the residual balancer, making sure the fine equilibrium of supply and demand is never tipped too far out of balance.

By this stage our energy trading team’s activities have already played a key role in managing system issues ahead of real-time and helping with balancing supply and demand.

For example, they help to maintain our upward or downward operating margin – vital for keeping electricity flowing securely –  by trading cheaper power with neighbouring countries over interconnectors when economical to do so.

Read more about why our operating margin is so important

And they can solve system constraints, which is when we have to ask power sources in certain areas of the grid to turn down because the network can’t carry all of the power they’re generating.

The team will trade to alleviate the constraint (whether for thermal, stability or voltage reasons), then our control room will – through the balancing mechanism – rebalance the power that has been reduced or increased to manage that constraint.

All of these actions are about keeping electricity flowing safely around the country, and setting our control room’s real-time operations up for success.

Our energy trading team is a crucial link in a chain of events that makes sure when you flick that switch, your power is there when you need it.

We’re making our trading activities more transparent to help industry stakeholders make better and more informed decisions, increase competition and ultimately benefit consumers by reducing costs. For more information and insight on our trading actions and data, visit our data portal.