Electricity Day-Ahead Markets
Meeting the Demands of Oregon Energy Consumers
Every day, electric utilities work to reliably provide electricity to consumers. Because there is currently limited capacity to store electricity on the system, utilities must typically meet consumer demand in real time—perfectly balancing the supply of electricity with demand every minute of every day. Electric utilities can supply electricity by generating their own or by purchasing it from other generators. When utilities purchase electricity, they can either enter into bilateral transactions with other utilities or individual electricity generators, or purchase electricity from an organized market.
There are two types of organized wholesale electricity markets: day-ahead and real-time markets. Day-ahead markets allow utilities to purchase and sell electricity the day before service is needed to meet forecasts of demand and generation for the next day. Real-time markets allow utilities to purchase electricity on the day of service to meet unexpected fluctuations in demand or generation from situations such as unforeseen weather events.2 For more information about the wholesale electricity market and real-time markets, see the Oregon Department of Energy’s Policy Brief: Evolving Wholesale Electricity Markets article in the 2020 Biennial Energy Report.
Complexities in Meeting Electricity Demand
The basic framework of electricity supply needing to meet demand provides a helpful overview of the challenge electric utilities face every day. In reality, however, providing safe, reliable, and fairly priced electricity is more complex with utilities also facing physical infrastructure constraints and the need to meet reliability requirements systemwide. In regions with a Regional Transmission Organization or Independent System Operator, electricity markets, transmission, and reliability are all overseen by the RTO or ISO.
In the United States today, there are seven electricity day-ahead markets. Currently, each day-ahead market in the U.S. is concurrent with a Regional Transmission Organization or Independent System Operator. The RTO/ISO in each region runs the day-ahead market. While there are differences and additional complexities in how each of these individual markets function, all day-ahead markets in the U.S. follow the basic form outlined above—with market participants submitting purchase or sell bids and the RTO/ISO managing those bids to determine the market price, applying anti-gaming rules and mechanisms. For more information about RTO/ISOs, see the Oregon Department of Energy’s Regional Transmission Organization Study: Oregon Perspectives.
As Oregon is not part of an RTO or ISO, these three areas are currently coordinated separately by each utility for their service territory. While the focus of this article is on the electricity market, below is a short description of transmission and reliability for additional context with links to where you can find more information.
The Western Energy Imbalance Market is one example of how an organized market can work outside of an RTO/ISO region. The Western Energy Imbalance Market is a real-time electricity market that is run by the California Independent System Operator but is open to participation from utilities across the western region who are not CAISO members.