2009 State of the Market Report
to the day-ahead market because it constitutes a large share of the price-sensitivity at the margin that is needed to establish efficient day-ahead prices.
Virtual transactions scheduled in the day-ahead market are settled in the real-time. Virtual demand bids are profitable when the real-time energy price is higher than the day-ahead price; conversely, virtual supply offers are profitable when the day-ahead energy price is higher than the real-time price. For example, if the market clears one MW of power for $50 in the day-ahead market, the seller must then purchase or produce one MW in real time to cover the trade. Accordingly, if a virtual trader expects real-time prices to be lower than day-ahead prices, the trader would sell virtual supply in the day-ahead market and buy the power back in the real-time market. Likewise, if a virtual trader expects real-time prices to exceed day-ahead prices, the trader will buy virtual load in the day-ahead and sell the power back in the real-time. This trading is one of the primary means of arbitraging the prices in the two markets, causing day- ahead prices to converge with real-time prices. The price convergence resulting from this arbitrage increases the efficiency of the day-ahead market.
Figure 20 shows virtual supply and demand volumes in the day-ahead market.
Figure 20: Virtual Load and Supply in the Day-Ahead Market 2007 – 2009: Average Cleared and Offered MW
Virtual Supply Scheduled Virtual Load Scheduled Net Virtuals
Offers Not Scheduled
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