Impact of Bilateral Contracts on Wholesale Electricity Markets: In a Case Where a Market Participant Has Dominant Position

Abstract

This paper aims at tackling how the bilateral contracts affect wholesale electricity markets. It examines different levels of bilateral contracts among producers and demand aggregators, aiming to quantify their effect. In addition, it focuses on markets where bilateral contracts could be used as a tool by market participants with a dominant position. Further, the paper examined a case with asymmetrical portfolios, namely where a market participant has a dominant position as in case of Greece, aiming to investigate if bilateral contracts can be used as a tool to manipulate the market. The simulations have been done by an optimization model that provides the economic dispatch and clearing of the day-ahead electricity market. The model incorporated bilateral contracts with committed generating capacity from producers, as well as dynamic bidding strategy per market participant. Results provide useful insights on the design of electricity markets, especially in case of designing voluntary energy exchanges where a market participant has a dominant position.