What is the OMIE market and how does it affect the price of your energy?

What is the OMIE market and how does it affect the price of your energy?

At Frank Energy we want to help you understand how the price of electricity is set and why it varies every day. For this, it is key to know the OMIE market, where we mainly buy the energy that we then distribute to our customers. This article will give you a simple explanation of what the OMIE market is, how it works and who participates in it.

1. What is the OMIE market?

The OMIE market, also called ‘Operador del Mercado Ibérico de Energía’, is the space where electricity is bought and sold in Spain and Portugal. In this market, generation companies (the ones that produce the electricity) and traders (the ones that sell it to you, such as Frank Energy) negotiate the prices for each hour of the next day.

Imagine an auction where electricity generators offer their energy at a price, and traders, like us, buy it to bring it to your home or business. This auction sets the price of electricity for each hour of the next day, which makes the price dynamic and can change from day to day.

2. How does the OMIE market work?

Every day, an auction is held on the OMIE market to decide the price of electricity for the next 24 hours of the following day. This process is repeated every day and works as follows:

• Generators (such as solar, wind, hydro and gas plants) indicate how much electricity they are able to offer and at what price they are willing to sell it.
  
• Suppliers, such as Frank Energy, submit bids to buy electricity at the best possible price, because our goal is to make energy affordable for you.
  

The auction sets the price based on the supply and demand for electricity for each hour. The more demand there is (for example, on cold days when more people use heating) or the less production (on cloudy or windless days), the higher the price can go. Conversely, when there is more production or less demand, the price may go down.

3. What is OMIE's relationship with energy traders?

OMIE does not sell electricity directly to consumers, but acts as the ‘middleman’ between those who generate the energy and the companies that market it. In other words, OMIE facilitates the purchasing process so that energy traders (such as Frank Energy) can purchase the electricity and then supply our customers.

We, as a marketer, buy the energy on this market that we then distribute to our customers. This means that the price we pay on OMIE directly affects the price we offer our customers, as it reflects the cost we have had to assume to acquire that electricity.

4. Which players participate in the OMIE market?

In order to understand how the market works, it is important to know the different agents involved in OMIE:

• Electricity generators: These are the companies that produce electricity from various sources (sun, wind, water, gas, etc.). These generators submit bids for the sale of energy on OMIE every day.
  
• Marketers: These are the companies, such as Frank Energy, that buy that electricity and then distribute it to homes and businesses. Our aim is to buy at the best possible price to offer competitive rates to our customers.
  
• Large consumers: Some energy-intensive businesses, such as large factories, can also participate in the OMIE market to buy the electricity they need directly.
  
• OMIE: OMIE is the organisation that manages the market and organises the auctions to set the price of electricity each day. It does not produce or sell electricity; it only facilitates the buying and selling process between generators and traders.
  
• System operators: These are responsible for ensuring that electricity reaches every home or business efficiently. In Spain, the operator is Red Eléctrica de España (REE), which ensures that the electricity system is balanced and runs smoothly.
  

5. Why does the price of electricity change?

The price of electricity changes daily because it depends on many factors. The main ones are:

• The demand for electricity: If there is more consumption (e.g. at peak hours or on extremely cold days), the price usually goes up.
  
• The supply of energy: Depending on the availability of renewable sources (such as solar or wind energy) and the generation costs of other sources, the supply of electricity can vary. If there is less generation, the price tends to rise.
  
• External factors: The price of fossil fuels (such as gas) and weather conditions (for example, if there is little wind or sun) also influence the final price.
  

At Frank Energy we work to minimise the impact of these fluctuations on our customers' tariffs and always offer the most competitive energy possible.

6. What does all this mean for you?

As a Frank Energy customer, the OMIE market is important because it defines the price of electricity that is then delivered to your home or business. However, you don't need to worry about participating in this market or following the auctions; we take care of that for you. Our team monitors the market on a daily basis to get the best possible price and thus offer competitive and transparent tariffs.

In short, the OMIE market is where the whole process of getting electricity to you begins, and as a marketer, we are here to make sure it does so at the best possible price.

Calculate your Frank Energy tariff here and find out how much you could be saving.