Framework and Methods for the Analysis of Bilateral Transactions

Abstract

Under competition and open transmission access, bilateral electricity transactions, which are nothing more than contracts between sellers and buyers, have become the new decision variables in power system analysis. Even under the traditional structure, where all generators belong to one entity and all loads buy their power from that same entity, it can be argued that transactions are bilateral, namely, from the individual generators to the ‘utility’ and from the ‘utility’ to the individual loads. With competition, however, many more types of bilateral transactions are possible. Thus, individual generators can now sell power directly to loads or to a pool or to trading entities such as marketers which, in turn, can trade with loads or among each other. Electricity transactions can take on a variety of characteristics such as firm or non-firm, short or long-term, or they can make use of financial instruments such as futures and options. Furthermore, transactions can involve trades of electricity in the form of energy or instantaneous power or reserve, both against each other or, alternatively, in return for other sources of energy such as gas, coal or hydraulic potential. With time, additional innovative types of transactions will emerge, limited only by the ingenuity of the market and the likelihood of making a profit.