This section describes what consolidation is, why it exists and provides links detailing firms which are active in the consolidation market.
What is consolidation?
Generators will generally have a target energy output for any given time period, but not all will achieve this exact figure. Some will over-produce and some will fail to meet their target. Consolidation combines the partial or total outputs of a number of generators into one energy account so over- and under-producing accounts are combined to cancel each other out, resulting in a stable aggregate output.
Consolidation can be particularly attractive for generation sources that are less less predictable than conventional generation, such as wind generation. Consolidation works best when the causes of the variation in generation output are not related. For example a wind farms in the same region are likely to experience peaks and troughs in output at around the same time and so consolidation is more likely to magnified variations in output rather than smooth them out. By contrast, combining a wind generator, a combined heat and power plant and a biomass plant is likely to bring a more stable output.
Why does consolidation exist?
Under BETTA, generators and suppliers of electricity are incentivised to balance their physical and contractual positions. Under this incentive generators who produce more electricity than they are contracted to supply are paid for "spilling" the surplus electricity onto the grid. Likewise, generators who fail to supply the contracted amount of electricity must pay for this shortfall.
Generators who spill are paid a price for this excess that is generally lower than they would get in the open market. Those who have a shortfall have to pay a price that is generally higher than it would normally cost in the open market.
How much consolidation is taking place?
Almost all smaller generators have contracts to consolidate their output, many with major generators or suppliers. These contracts generally include elements of embedded benefit and energy price and are not always explicit about how much benefit is specifically attributed to consolidation. Independent consolidators (those who do not own generation assets or demand) can offer the consolidation service by combining many smaller generators' output and specialising in value-added products.