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2009 State of the Market Report

Market Performance

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

25,000

20,000

Virtual Supply Scheduled Virtual Load Scheduled Net Virtuals

15,000

10,000

5,000

MW

0

  • -

    5,000

  • -

    10,000

  • -

    15,000

  • -

    20,000

Offers Not Scheduled

  • -

    25,000

07 08 09 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

Avg

2007

2008

2009

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