The energy value chain

In the energy value chain, successive functions are aligned from generation to final consumption by the customer. Prior to liberalisation energy firms were typically vertically integrated, i.e. all major units of the energy value chain were included in one single organisation. Liberalisation requires a separation of the network-related activities (transmission and distribution) from the commercialised parts.
A fully separated, hence fully unbundled, energy value chain may be considered a basic market design for a fully liberalised energy market. This corresponds to the atomistic organisation of economic actors in a perfect market. The energy value chain depicted above can therefore be seen as one of the most granular and fundamental descriptions of the playing field of stakeholders and players in the energy domain.

This property makes it a generic representation that can be used to assess and analyse not only the energy market but also the associated regulatory regime. Hence, the six units in the energy value chain above are considered to be the basic building blocks for a market design irrespective of utility jurisdiction. In the energy value chain two basic flows are recognised that pertain to the underlying dynamics. The first is from left to right and is known as the physical flow, electricity is generated, gas is produced at the production unit. This is then traded on the wholesale market in the trade unit and transported via the transmission unit (highways) and the distribution unit (regional and local networks). The energy is metered during transport not only for billing purposes but also to ensure proper management of the physical flow of energy in the entire value chain. Meter data is therefore the fundamental information source on which the energy market thrives. Finally, in the sales unit the physical flow ends with delivery to the end customer according to the contracts agreed upon. The energy value chain is the basic model that allows UCPartners staff to interpret and assess any development in the energy market from an institutional, technical, economic and social perspective.