Commodity Derivatives, 2nd Edition

CHAPTER 8Electricity

‘One of the biggest surges in the electricity in the UK occurred at the end of an international soccer match in 1990 when England lost to Germany. Demand soared by 2,800 megawatts, which was equivalent to more than a million kettles being switched on as the English drowned their sorrows with the answer to all the world's problems – a cup of tea’.

—UK National Grid

8.1 WHAT IS ELECTRICITY?

All matter is made up of atoms, the core of which is called a nucleus. This nucleus is made up of protons and neutrons and is surrounded by electrons. If electrons move from one atom to another, a current of electricity is created.

In its raw form, electricity is useless to our daily needs. It is nearly always converted into a different kind of energy at its end point of consumption. It is converted into heat to cook food or boil water or into light and sound energy in order to watch TV or listen to the radio.

Electricity is made by converting different forms of energy. Not much electricity exists naturally in the environment and it is nigh on impossible to capture or store. On Earth, there are many forms of stored energy, mainly in the form of plants and fossil fuels, which can be converted into electrical energy. It is also possible to convert movement energy from wind and waves and light energy into electrical energy. Changing one form of energy into another is termed ‘transformation’, while moving energy from one location to another is called energy transfer.