Model and data analysis of two-settlement electricity market with virtual bidding

Abstract

Systematic nonzero spreads, defined as the differences between day-ahead and real-time prices, are routinely observed in the wholesale electricity markets. Virtual bidding is a financial mechanism which aims to reduce the magnitude of spreads by allowing market participants to arbitrage on the spread. We follow a data-driven approach to develop a two-settlement market model, and consider a game-theoretic setting with virtual bidders as strategic players. We interpret the spread as a measure of the average forecast accuracy of the market and all the virtual bidders. The main results convey the implication that introducing more qualified virtual bidders into the market help the convergence of the spread.