The Impact of Physical Bilateral Agreements on the Wholesale Electricity Price

The presence of physical private agreements between generating companies and customers may have a significant impact on market results in terms of dispatched power, prices and power flows. A mixed pool/bilateral market structure allows to address this issue. In fact, it permits to solve each wholesale market session by taking into account the market participant bids for trades on the spot market, together with the bilateral contracts settled privately by market participants in advance. This paper assesses the effects of firm physical bilateral agreements on wholesale market prices. In particular, the Italian electricity market scenario is considered and the impact of different amounts traded through firm bilateral agreements on day-ahead electricity prices is analyzed.