Wholesale energy markets are where producers, retailers and large consumers trade energy in bulk, with transparent prices, risk management and growing support for renewables and long-term contracts.

What are wholesale energy markets? 

Wholesale energy markets are the backbone of our energy system. The term refers to the bulk purchase and sale of energy products, covering energy sourced from renewables-, coal, nuclear, natural gas and more. Participants of these markets include the (energy) producers and retailers as well as financial brokers, energy traders and large consumers. In general, the energy is traded in large quantities between utility companies, retailers or other independent renewable energy producers, and not to end customers. 

Wholesale energy markets offer participants transparent price references and enable them to manage both short- and long-term risks. Historically, energy markets were heavily regulated. Liberalization opened these markets to competition and introduced new trading infrastructure, including organized energy exchanges that facilitate transparent and efficient electricity trading. In 2024, the European Union introduced a new Electricity Market Design Reform that redefined how electricity is traded and priced across Member States. The reform was a response to the energy price crisis of 2021–2022 and the growing need to integrate renewable generation more effectively. Its main goals are to stabilize electricity prices, strengthen consumer protection and accelerate the shift to clean energy. To achieve this, it promotes the use of long-term contracts such as Power Purchase Agreements (PPAs) and two-way Contracts for Difference (CfDs), which reduces dependence on short-term spot prices. It also improves transparency through enhanced oversight under the REMIT regulation. Together, these changes aim to create a more resilient, affordable and renewable-friendly energy market for Europe. 

Electricity pricing: the merit order model

Electricity prices in European wholesale markets are formed according to the merit order model. In this model, all energy sources are ranked according to their variable generation costs from cheapest to the most expensive. As renewables such as wind and solar have almost no marginal costs, they are dispatched first. This is typically followed by nuclear, lignite, coal and then gas plants. 

The market clearing price is determined by where power demand and supply intersect.  This price then applies to all producers whose offers were accepted, ensuring to meet demand at the lowest overall cost. 

If demand increases, the merit order moves up, meaning a more expensive energy source sets the clearing price, pushing up electricity prices. At high renewable output, cheaper plants can cover most of the load, which decreases the overall price of electricity. Over time this mechanism pushes high-cost fossil fuels out of the market, which lowers the average emission and increases the need for flexibility in renewable generation.

The graphic below illustrates how this exactly works:

• The x-axis shows generation capacity from lowest to highest cost.
• The y-axis represents the variable cost per unit of electricity.
• The intersection of demand (load) with the merit curve sets the clearing price. 
• As demand fluctuates, the intersection will move and cause corresponding price
  changes. 

The Merit Order Model is the basis of price formation and continues to influence trading behavior in day-ahead as well as intraday and balancing markets, where prices evolve more dynamically in order to respond to real-time conditions.

Market participants

As previously mentioned, wholesale energy markets involve a variety of participants. Let’s take a look at the most commonly represented players: 

Generators and producers

Energy producers or generators are companies or individuals who produce electricity. This can range from large fossil or nuclear plants to wind and solar photovoltaic (PV) plants. In the wholesale energy market, they participate in offering their generated electricity for sale by submitting bids reflecting the cost of production which then feed into market clearing mechanisms such as day-ahead or intraday, which we’ll focus on later. 

Suppliers and retailers

Suppliers purchase the generated electricity in bulk on the wholesale market. They then resell it to end customers such as households, businesses and industries. This business model depends on buying energy as efficiently as possible and managing risks through hedging contracts. On top of that, they offer services such as green or flexible tariffs for their customers. 

Market operators and exchanges

Enterprises such as EEX (European Energy Exchange) and Nord Pool operate trading platforms where standardized contracts are bought and sold. They ensure liquidity, transparency and efficient price formation. Exchanges generally cover day-ahead and intraday markets and also offer futures and derivatives for hedging purposes.

Over the counter (OCT) traders

Trades are not limited to exchanges. In over-the-counter (OTC) bilateral contracts, two parties, such as a producer and a large industrial customer, agree directly on the volume, price, and delivery period. The price is negotiated between the two parties rather than set through a central market mechanism. While OTC trades offer greater flexibility, they lack the transparency and liquidity of exchange-based trading.

Transmission system operators (TSOs)

A TSO’s job is to make sure the grid stays stable and secure. While they don’t trade electricity themselves, they rely on balancing markets and system services to control grid frequency and voltage by correcting any deviations between supply and demand.

Balancing responsible parties (BRPs)

Balancing responsible parties take financial responsibility for balancing the grid’s supply and demand within their designated portfolio. They manage imbalances by forecasting and scheduling energy, trading on markets and compensating the TSOs for any deviations between their planned and actual energy flows.

Aggregators

Aggregators bundle distributed energy resources (DERs) such as EV chargers, home batteries or industrial consumers into portfolios that are large enough to participate in wholesale markets. They then enable flexibility trading on day-ahead, intraday or balancing markets, something individual consumers could not do on their own. 

Regulators and supervisors

Markets must remain transparent and fair. In the EU, this task is handled by institutions such as ACER (Agency for the Cooperation of Energy Regulators) and national regulatory authorities. With the reform of the EU market design for 2024, ACER has been given stronger supervisory powers, including the monitoring of cross-border trading and data transparency. Additionally, the REMIT Regulation (Regulation on Wholesale Energy Market Integrity and Transparency) prohibits insider trading and market manipulation in energy markets.

Emerging roles and tools

With the acceleration of largely digital solutions, new roles and tools are emerging. Virtual Power Plants (VPPs) are groups of smaller producers of renewable energy that act as a single market participant to maximize efficiency and minimize costs. Also, Multi-Agent Systems (MAS) are becoming more frequent in research contexts. MAS are software-based “agents” that simulate real market conditions. They can then autonomously negotiate bilateral contracts or model strategies in a market environment.

Wholesale energy market types

The wholesale energy market consists of different types that are divided by when electricity is traded to delivery and by how much flexibility is offered. The most important markets are: 

Day-ahead market 

The day-ahead market is a forward electricity market and serves as the main scheduling platform. Within this market, energy is traded for delivery on the following day. Its primary focus is to provide price clarity and a planning basis for producers, suppliers and other market participants to align their electricity generation and consumption schedules one day in advance. As of October 1st 2025, energy is traded in 15-minute intervals instead of hourly.

Intraday market

The intraday market allows participants to trade electricity within the same day, giving them the flexibility to react to updated forecasts or unexpected changes in generation and demand. Trading takes place continuously through the Intraday Continuous market, which runs up until very close to delivery. In Germany, for example, trading is possible until five minutes before delivery. In addition to continuous trading, there are also three Intraday Auctions (IDA 1, IDA 2, and IDA 3) where electricity can be traded at set times through organized auctions. These mechanisms enable balancing responsible parties (BRPs) to fine-tune their positions and keep the system in balance as real-time conditions evolve.

Balancing market 

The balancing market consists of several ancillary service markets that help maintain grid stability and system reliability. In Europe, these typically include Frequency Containment Reserve (FCR), Automatic Frequency Restoration Reserve (aFRR), and Manual Frequency Restoration Reserve (mFRR). Through these markets, transmission system operators (TSOs) can quickly activate flexible resources such as batteries, virtual power plants (VPPs), or responsive industrial loads to correct imbalances and restore frequency when deviations occur.

Forward and futures markets

Forward and future markets allow its participants to buy or sell electricity for delivery within a longer period of time, such as weeks, months or even years in advance. These kinds of contracts set a price today for delivery in the future and protect both buyers and sellers from unexpected price swings.

• Forward markets are typically OTC agreements that are negotiated directly between two parties. They can be customized in volume, duration or delivery terms.
• Future markets are standardized contracts traded on exchanges such as EEX or Intercontinental Exchange (ICE) that offer transparency, liquidity and allow for easier settlement. 

Both markets are essential for countering long-term risks. This way, producers can secure stable revenue for future output while retailers and large consumers are protected from wholesale price volatility.

Wholesale energy market mechanisms and products

As discussed earlier, energy markets play a crucial role in coordinating power flows, maintaining grid stability and managing risks. This coordination relies on multiple mechanisms operating on different timeframes to ensure system resilience. At the core of this process lies the  Pan-European Hybrid Electricity Market Integration Algorithm (Euphemia). Euphemia aggregates millions of bids and offers from market participants and executes trades within the Single Day-Ahead Coupling (SDAC) market. This creates a unified pan-European cross-zonal day-ahead electricity market, enhancing liquidity, fostering effective competition and improving the efficient use of generation resources across Europe.

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In September 2025, Euphemia was reformed to support 15-minute trading intervals instead of hourly ones to make day-ahead markets more dynamic and better aligned to short-term fluctuations in renewable energy generation and demand. 

By integrating these mechanisms, energy market participants can automate and optimize their actions across multiple timescales, from scheduling distributed assets in response to 15-minute day-ahead price signals to providing flexibility for balancing and redispatch. The Euphemia reform has heightened the importance of short-term responsiveness, making digital energy management systems essential for translating complex market signals into actionable operational decisions. Through intelligent forecasting, automated scheduling and real-time optimization of decentralized assets, these systems enhance overall efficiency while unlocking new value streams from flexibility.

Alongside Euphemia and its reform, several other European mechanisms ensure efficient coordination and system stability across markets and timeframes. The Single Intraday Coupling (SIDC), powered by the XBID algorithm, links intraday markets across multiple European countries, enabling cross-border trading almost in real time. For balancing purposes, platforms such as PICASSO (for aFRR) facilitate cooperation between transmission system operators to activate reserves efficiently across regions. At the same time, ancillary service markets, including Frequency Containment Reserve (FCR) and other frequency restoration reserves, maintain real-time grid stability. Bilateral agreements and capacity mechanisms add further layers of reliability by ensuring that sufficient generation and flexible demand are available to meet electricity needs under all conditions.

Flexibility and digitalization

As wholesale energy markets are shifting towards higher time resolutions with future outlooks predicting 5-minute granularity, the value of flexibility is increasing immensely. Each data point creates new opportunities to optimize either consumption, production or storage. 

An emerging topic in this transition is demand response, in which loads are shifted to cheaper periods or consumption is reduced during peaks. Aggregation can then scale this potential by bundling distributed resources such as EVs, batteries or heat pumps into market relevant portfolios that actively participate in wholesale, balancing and ancillary services. Advances in MAS take this a step further, as these tools enable decentralized resources to negotiate contracts, forecasts and risks, and are able to make market decisions autonomously. 

This digital layer seamlessly connects assets and markets within wholesale electricity markets. Algorithms monitor price signals, forecasts, supply and demand to automatically schedule flexible assets, maximizing their value. Dynamic tariff systems then relay these incentives to consumers, aligning local behavior with market needs. 

Future outlook and expert insights

Wholesale energy markets are evolving from centralized structure into real time data driven ecosystems. With the 2024 EU market design reform and 2025 Euphemia upgrade, the foundation for a more granular, transparent and resilient trading is set. This then allows for an easier integration of renewables, and long-term stability and a more active role for consumers.

Bilateral contracts will continue to be a central prevention tool for risk prevention, while exchanges ensure liquidity and regulatory overview under frameworks such as the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT). However, the most significant transformation is the shift to digitalization, with platforms that convert complex wholesale dynamics into actionable signals for distributed energy resources. As Irene Guerra Gil, Energy Market Expert at gridX, says:

“The next phase of market evolution is not about faster trading. It’s about translating that speed into smart action. Flexibility, automation and digital coordination are what will define competitive advantage in the coming years.”

As markets become more and more dynamic, energy actors that integrate forecasting, automation and market participation at scale will be ready to capture the emerging flexibility value while supporting a more stable and sustainable energy system in the future.