Cross-border electricity trading has long formed a part of both European and American financial markets, and is rapidly on the increase in Asia. The idea that electricity can be bought, sold and traded is far from being a new one.
However, with increasing European integration and growing interest in renewable energy resources, cross border trading is once again on the forefront of political and financial minds.
Why Trade Electricity?
There are many reasons why electricity is traded across borders. Initially, this was done as both a money saving measure and a way to even out electricity production. Buying cheap electricity from across the border and importing it was seen as sound financial sense. Particularly in cases where bordering countries had widely different production costs.
Out of synch peak demand times due to time zone differences means that production plants often have different high times and low times, meaning that whilst in one country they may not be able to keep up with demand at a certain time, another country may be in the position to make up the difference, this was a solid investment on both sides of the border.
In the past, such trade was also influenced by number of production plants and ability to meet demand. However, as technology eased the differences in production methods and supply issues, cross border electricity trading somewhat fell out of fashion, since profit margins became slimmer.
Environmental Issues Drive Trading
However, with growing environmentalist restrictions on production involving fossil fuels, cross border trading is once again on the increase. As neighbouring countries with differing restrictions angle to make the most out of the emissions they are allowed to produce, environmentalism is having a huge impact on the trade system.
Renewable resources are playing their part in this upswing too. With the UK government vowing to have Europe's biggest production of wind turbine energy by 2015, traders are eager to get in on the ground floor of what could be a big new trade market.
And such trade is being actively encouraged. Particularly by commissions within the EU who are pushing a plan to have an integrated European Union energy system in the next few years. As grants and both government and EU funding increase to support the use of renewable energy, the financial gains to be had from cross border trading are once again increasing.
Should You be Investing?
Does this mean that we should be investing in cross border electricity trading?
Not necessarily. Profits to be had are still relatively low and the truth is that most of this trade is now controlled and in the hands of large companies.
The days when a lone trader could make millions by carefully investing in cross border electricity trade are over. However, the impact that environmentalism is having on the trade markets is an interesting one.
Should the UK really become Europe's leading wind power producer, then she will be in the position of not only becoming more self-sufficient in terms of electricity supply and more easily able to comply with increasingly strict environmental restrictions, but also to profit by exporting such energy abroad. And this results in better economic conditions for everyone in Great Britain.