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A diagram of the physical electricity grid and the financial market that sits beside it.

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# How the UK electricity system works

A diagram of the physical electricity grid and the financial market that sits beside it.

UK electricity system architecture

One diagram showing the same actors through three flows: physical electricity, bidding and contracts, and financial settlement.

Combined architecture diagram of UK electricity bidding, contracts, power flow and money flowGenerators offer electricity through wholesale contracts and trading, send physical electricity to the shared grid, and receive money through settlement. Suppliers contract and trade for electricity financially and bill households, while homes take power from the shared grid.Combined system viewThe same generator can contract or bid financially, deliver power to the grid, and be paid through settlement.physical electricitybids / pricesmoney / billsbalancingGeneratorsWind £10/MWhSolar £15/MWhNuclear £25/MWhGas £70-90/MWhImports / batteriesSell MWh intothe shared systemContracts and tradingBilateral contractsPPAs / forward hedgesDay-ahead / intradayBalancing / imbalanceShort-term auctions canproduce a marginalprice signalSupplierExample: OctopusForecasts customer useContracts / trades MWhPays wholesale costsDoes not send its ownelectrons to the homeHomeTakes powerfrom the gridPays tariffFixed, SVT ortime-of-useShared national gridElectricity is pooled hereA home cannot receive labelled electronsfrom a particular supplier or generatorNESOKeeps supplyand demandbalanced liveOfgemPrice cap limitscovered householdtariffsoffers / contractsprices / hedgesbill paidcontracts / tradessettlement pays generatorsphysical MWh inphysical MWh outbalancing actionstariff constraintWhy gas mattersGas need not supply most electricity.If it fills the final shortfall, it canset the marginal price signal.Forecast versus realityIf expected wind or demand is wrong,NESO calls flexible resources to keepthe physical system balanced.Household billThe home usually pays a tariff basedon the supplier's contract portfolio,not the live wholesale price.
Physical layer

Generators put power into the shared grid. Homes take power from the shared grid.

Contract layer

Suppliers use contracts, PPAs, hedges and short-term trades to match expected customer demand.

Money layer

Households pay suppliers. Suppliers pay generators, traders and settlement bodies for contracted electricity.

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