Wholesale Energy: What is it?

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“Wholesale Energy” is a term used to describe the buying and selling of different types of energy in a wholesale market context. Different types of participants are involved in this type of market situation, including sellers of different types of energy, buyers who use those resources, and investors who are involved with companies and other entities that buy and sell large quantities of energy products. Considered a lucrative type of investment, wholesale energy can take many forms, including electricity, natural gas, and even steam.

With wholesale energy, sellers offer bargain prices to sellers, usually in exchange for commitments to purchase significant quantities of energy products within a specific time frame. In many cases, utility companies can be both buyers and sellers in this arrangement. For example, a power company serving a certain territory may contract to purchase excess electricity from another power company associated with a different territory, paying a full price for the purchase. This approach allows the business with excess energy to earn a return on the sale, while also increasing the buyer’s ability to effectively deliver energy to its customer base.

Proponents of wholesaling energy see this arrangement as a means for suppliers to secure the resources they need to meet consumer demand without having to invest additional resources in building additional plants or generating facilities. At best, the wholesale energy market allows energy products to be distributed more fairly to the end users who use these products. At the same time, buyers and sellers are able to position themselves to generate revenue from the deal, with sellers earning a decent return from the sale and buyers purchasing the products at prices that make reselling to end users profitable.

Detractors of the concept of wholesale energy sales in an open market note that this approach sidesteps some of the checks and balances that are often included in government regulations designed to protect consumers. For example, a wholesale energy buyer may attempt to increase the rate charged for the service to the maximum allowable amount, even if the wholesale price paid for the energy is very low. This is especially true in areas where an energy supplier has a monopoly on sales to customers. While this is a possibility when there are no laws or regulations to help limit the type of tariffs energy suppliers can charge, many jurisdictions now have regulations in place that help minimize this type of pricing activity and prevent suppliers to raise rates beyond a certain amount.

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