Power Value Chain — Generation to Consumption Explained

Supply–demand balance: electricity must be balanced in real time

Electricity cannot be stored at scale. At every moment, supply must equal demand. The supply curve shows generators ranked by marginal cost (merit order); demand is inelastic in the short run. The intersection sets the clearing price. Grid operators and balancing markets keep the system in balance.

How the power value chain interacts with gas and markets

Spark spread and gas — The power value chain is closely linked to gas markets. The spark spread is power price minus the cost of gas (adjusted for heat rate). When the spark spread is positive, gas plants can run profitably; when gas is expensive or power is cheap, they are marginal or offline. Gas price and plant efficiency (heat rate) determine whether gas-fired generation runs and at what hours.

Renewable integration — Variable renewables (wind, solar) reduce marginal cost when they run, pushing conventional plants down the merit order. This increases price volatility and the need for flexible generation (gas) and demand response.

Capacity markets and ancillary services — In many markets, generators earn revenue not only from energy but from:

Capacity markets — Payments for being available to generate when needed, ensuring adequate reserve margin.
Ancillary services — Frequency response, reserve, reactive power, and balancing services paid by the system operator to keep the grid stable.

See Spark Spread Explained for how gas price and plant efficiency drive dispatch decisions.