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Smart Grid Authors: Pat Romanski, Scott Allen, Kevin Benedict

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Demand Response and Renewables Integration Will Drive the Growth of Short-Term Power Markets, According to Pike Research

Due to the prohibitive cost of storing electricity on a major scale, short-term power markets are relied on to balance generation and load on a 24/7 basis. These markets typically take the form of a day-ahead market that provides a preliminary forecast of the next day’s power generation and consumption, and a real-time market, which is used to balance the actual generation to load. Due to advancing technology and declining prices for renewable energy, particularly wind and solar, demand response (DR) and renewables integration are both growing into significant factors in the short-term markets. Demand response acts as a counterbalance against price volatility in the short-term power markets, while the integration of renewables means that weather fluctuations will increasingly affect the short-term price of power. According to a recent report from Pike Research, these two forces will lead to accelerating growth in short-term power markets over the next several years.

Trading services will grow from $283 million in 2011 to as much as $333 million in 2016 under an economic recovery scenario, the cleantech market research firm forecasts. Under a slower growth model, trading services will reach $317 million in 2016.

“To date, market mechanisms and rule changes have been effective at optimizing grid resources,” says research analyst Eric Bloom. “While it is not clear when these mechanisms will no longer be able to contain price fluctuations, the amount of wind and solar expected to come online will certainly raise the probability of pricing volatility. As the structure and product offerings in short-term power markets become more complex, the need for additional trading services increases.”

Data management and forecasting can help to make more effective trades and to help limit exposure to sudden price fluctuations. Once transacted, there are complex rules associated with settlements of trades. Vendors that offer these types of services are expected to see strong growth in the coming years. At the same time, the composition of traders is changing as the markets develop: Pike Research expects there to be new entrants in the playing field when credit becomes available and price volatility offers opportunities to trade effectively.

Pike Research’s report, “Short Term Power Markets in North America”, examines the market dynamics and opportunities associated with short-term energy trading and ancillary services in North America. The study includes an assessment of the ISO/RTO structures and the trading services that they enable. Profiles of key market participants are also included, along with forecasts for growth of the trading services market under three economic scenarios. An Executive Summary of the report is available for free download on the firm’s website.

Pike Research is a market research and consulting firm that provides in-depth analysis of global clean technology markets. The company’s research methodology combines supply-side industry analysis, end-user primary research and demand assessment, and deep examination of technology trends to provide a comprehensive view of the Smart Energy, Smart Grid, Smart Transportation, Smart Industry, and Smart Buildings sectors. For more information, visit or call +1-303-997-7609.

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