Term: Broker

Energy Brokers

Energy brokers act as liaisons between energy customers and suppliers in the retail energy markets and between buyers and sellers in the wholesale markets. Energy broker bring value to the supply chain through supplier relationships, price options, and advisory. 

What Are Retail Energy Brokers?

Retail energy brokers act as middlemen between end users and energy suppliers in deregulated energy markets. In most deregulated states, retail energy brokers are required to get licensed, insured, and bonded. Most licensing processes ensure that the brokers are knowledgeable, credible, and financially stable. Retail energy brokers acquire both commercial and residential customers and help their customer in negotiating the purchase of electricity and/or natural gas from a supplier. Brokers are compensated by the energy supplier in the form of a commission.

Energy broker commissions vary according to each brokers supplier relationships. They can be fixed, flat fees for each customer or based on the customer’s energy consumption. In many states, suppliers give brokers the freedom to determine their own fees and margins, which are built-in to the customers total price for energy.

What Are Wholesale Energy Brokers?

Wholesale energy brokers, often referred to as Introducing Brokers, act as liaisons in the wholesale financial trading of energy. In the wholesale markets their are many counterparties transacting with each other through energy exchanges. Some of these parties include hedge funds, banks, traders, hedgers, suppliers, utilities, and power plants. In the world of electricity trading, traders buy and sell financial contracts on a market exchange such as the Intercontinental Exchange (the ICE).

In these markets, traders align themselves with an Futures Commission Merchant (FCM) who is necessary for providing liquidity and clearing trades on behalf of the trader. In many cases, the FCM will recommend that the trader work with an Introducing Broker or Wholesale Energy Broker rather than trading directly on the exchange. Through their vast networks and relationships, Wholesale Energy Brokers make a living by helping traders procure energy at slightly lower prices than those that are posted on the exchange. And fractions of a penny mean a lot to a trader who is dealing in big sums. Wholesale energy brokers earn money by making a spread commission, which is the difference between the purchase and sale price in a transaction.

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