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What Is Wholesale Energy?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 November 2016
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    Conjecture Corporation
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"Wholesale energy" is a term used to describe the purchase and sale of different types of energy in a wholesale market environment. A number of different types of participants are involved in this type of market situation, including sellers of different types of energy, buyers who make use of those resources, and investors who are involved with companies and other entities who buy and sell large amounts of energy products. Considered a lucrative type of investment, wholesale energy can take on many forms, including electricity, natural gas, and even steam.

With wholesale energy, sellers provide bargain prices to sellers, usually in exchange for commitments to purchase significant amounts of energy products within a specified period of time. In many cases, utility companies may be both buyers and sellers in this arrangement. For example, a power company that services a given territory may contract to purchase excess electricity from another power company associated with a different territory, paying a whole price for the purchase. This approach allows the company with excess energy to earn a return from the sale, while also increasing the ability of the buyer to effectively provide energy to its customer base.

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Proponents of the sale of wholesale energy see this arrangement as a means of allowing providers to secure the resources necessary to meet consumer demand without having to invest additional resources into building additional plants or production facilities. At its best, the wholesale energy market makes it possible to more equitably distribute energy products to end users who make use of those products. At the same time, buyers and sellers are able to position themselves to generate some revenue from the deal, with sellers earning a decent return from the sale and buyers purchasing the products at prices that make the resell to end users lucrative.

Detractors of the concept of wholesale energy sales in an open market note that this approach circumvents some of the checks and balances that are often included in governmental regulations designed to protect consumers. For example, it is possible that a buyer of wholesale energy could attempt to increase the rate charged for the service to the maximum amount allowed, even if the wholesale price paid for the energy is very low. This is especially true in areas where one energy provider has a monopoly on sales to customers. While this is a possibility when there are no laws or regulations that help to cap the type of rates energy providers can charge, many jurisdictions now have regulations in place that help to minimize this type of pricing activity and prevent suppliers from increasing rates over a certain amount.

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