VIRTUAL ENERGY: MAKING MONEY ON THE BIAS BETWEEN ISO DAY
AHEAD MARKETS AND REAL TIME MARKETS
Mark Lively, Utility Economic Engineers, 301-428-3618, MbeLively@Aol.com
During 2012, the PJM Day Ahead (DA) market was biased relative to the Real Time (RT) market.
Though the average prices differed by about 1% during the year, there were many hours when the DA and
RT markets predictably diverged, where the RT market price was either predictably much higher than the
DA market or predictably much lower than the DA market. This divergence between the two markets
occurred primarily when prices in the DA market were extreme. The prices in the RT market were, on
average, more extreme. Thus, when the DA market was high, the RT market on the actual trading day
was likely to be even higher. When the DA market was low, the RT market was likely to be even lower.
PJM 2012 Average Market Prices
RT Prices minus DA Prices
By Day of Week and By Hour
($/MWH)
Table 1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
All
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Sun.
(0.22)
0.06
(0.37)
(3.48)
(2.96)
(7.00)
(5.01)
(1.84)
(1.40)
(1.29)
(0.90)
(1.41)
0.09
0.14
0.78
0.14
(0.05)
(1.27)
0.16
(0.08)
(0.73)
(1.53)
(1.44)
(0.99)
(1.27)
Mon.
$ (2.12)
$ (3.85)
$ (2.20)
$ (0.50)
$ (1.26)
$ 2.50
$ (1.11)
$ (1.07)
$ 3.32
$ 6.23
$ 2.75
$ 2.75
$ 0.51
$ 2.04
$ (2.33)
$ 1.75
$ 7.11
$ 3.29
$ 6.28
$ 9.08
$ 3.07
$ (1.59)
$ (1.33)
$ (2.03)
$ 1.30
Tues.
$ (0.79)
$ (2.57)
$ (2.45)
$ (0.80)
$ 0.47
$ 9.44
$ 0.33
$ 1.47
$ 2.58
$ 2.16
$ 1.22
$ 2.31
$ 8.61
$ 3.28
$ 6.20
$ 8.22
$ 6.11
$ 3.59
$ 3.76
$ 8.54
$ 3.18
$ (1.51)
$ (1.26)
$ (2.01)
$ 2.50
Wed.
$ (0.60)
$ (1.29)
$ (1.95)
$ (0.69)
$ (0.78)
$ 2.42
$ (2.11)
$ (0.88)
$ (0.84)
$ 3.41
$ 2.54
$ 2.99
$ 1.98
$ (2.09)
$ (3.21)
$ (1.20)
$ 4.15
$ 3.39
$ 1.12
$ 2.11
$ 2.51
$ (1.65)
$ (1.30)
$ (1.35)
$ 0.28
Thurs.
$ (1.20)
$ (2.44)
$ (1.52)
$ (0.84)
$ (1.02)
$ 3.21
$ 2.41
$ (1.94)
$ 0.49
$ 1.26
$ (0.42)
$ (2.62)
$ (1.55)
$ (3.57)
$ (1.24)
$ (2.79)
$ (4.04)
$ (3.08)
$ (2.31)
$ 0.99
$ 0.40
$ (2.00)
$ (0.81)
$ (1.37)
$ (1.08)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Fri.
(0.16)
(2.41)
(1.85)
(0.03)
0.19
3.12
3.05
0.10
0.25
1.26
(2.02)
(0.74)
(0.03)
4.12
2.20
2.73
6.25
5.72
1.36
2.84
1.25
(1.28)
(0.46)
(1.02)
1.02
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Sat.
1.31
0.38
(0.18)
(0.77)
(0.42)
(2.32)
(0.77)
0.09
0.70
2.14
2.20
0.65
(0.01)
(1.03)
(1.29)
(1.12)
(0.68)
(0.42)
(2.27)
(1.30)
(0.95)
(0.91)
(0.95)
(0.37)
(0.35)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
All
(0.54)
(1.73)
(1.50)
(1.02)
(0.83)
1.63
(0.46)
(0.58)
0.73
2.17
0.77
0.56
1.37
0.41
0.16
1.11
2.69
1.60
1.16
3.17
1.25
(1.49)
(1.08)
(1.30)
0.34
Table 1 provides the average price differential between the RT market versus the DA market by time of
day and day of the week. The highlighted cells identify those hours when the average RT price was
higher than the average DA price for the indicated hour and day of the week. The highlighted cells are
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VIRTUAL ENERGY: MAKING MONEY ON THE BIAS BETWEEN ISO DAY AHEAD
MARKETS AND REAL TIME MARKETS
predominately during the week during the middle of the day, when the market prices are predictably high.
The highlighted cells indicate that the RT prices were predictably even higher than the DA prices.
PJM 2012 Average Market Prices
RT Prices minus DA Prices
Sorted
($/MWH)
Table 2
DA Higher
RT Higher
All Hours
Count
5,640
3,133
8,7831
Average
-$4.429
$8.930
$0.341
Extension
$(24,982)
$ 27,978
$
2,996
Table 2 provides the average price differential between the RT market versus the DA market sorted by
which market was higher. The DA market was higher for 5,640 of the hours in 2012, about 64% of the
time. During these hours, the differential averaged $4.429/MWH. The RT market was higher for 3,133
hours, about 36% of the time. During these hours the differential averaged $8.930/MWH. The relative
sizes of the price differentials slightly more than overcame the large differential in the number of hours.
Figure 1 provides a scatter diagram of DA prices plotted against the corresponding RT price. They are
relatively well linearly correlated, depending on the level of R-Square one is expecting. Perfect
correlation is 1.00. Of more importance is the relative variation of the two sets of data. The DA price
1
2012 had 8,784 hours. One hour of data was lost due to the switch to and from Day Light Savings time. The
hours do not add because of the hours when the DA and RT prices were equal.
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VIRTUAL ENERGY: MAKING MONEY ON THE BIAS BETWEEN ISO DAY AHEAD
MARKETS AND REAL TIME MARKETS
range from zero to just over $250/MWH. The RT prices vary much more greatly, from a negative price
lower than $100/MWH to a positive price just over $400/MWH.
Figure 2 is a price duration curve for DA prices. The DA prices are sorted and then plotted against the
resulting index of DA prices. Figure 2 is similar to the standard electric system load duration curve. The
plot of the DA price for any hour (for instance, hour 2,580) shows the price ($28.02/MWH for hour
2,580) which equals or exceeds the price for the indicated number of hours during the year. The RT
prices are then plotted against the same index of DA prices. The RT prices are generally above the DA
prices on the center and right side of Figure 2, significantly enough to show up despite the size of the
plotting markers. Conversely, the RT prices are generally below the DA price on the extreme left side of
Figure 2.
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VIRTUAL ENERGY: MAKING MONEY ON THE BIAS BETWEEN ISO DAY AHEAD
MARKETS AND REAL TIME MARKETS
Figure 3 differs from Figure 2 by the choice of indices. Where Figure 2 used the index of DA prices,
Figure 3 uses the index of RT prices.
Figure 4 presents a price duration curve for the difference between the RT market and the DA market
plotted against the index for the DA market. Under the DA index, the DA market price climbs sharply
on the right extreme of Figure 2. Here in Figure 4 the differentials also climb sharply at the right extreme,
though there is noticeable noise with some of the differentials negative on the right extreme.
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VIRTUAL ENERGY: MAKING MONEY ON THE BIAS BETWEEN ISO DAY AHEAD
MARKETS AND REAL TIME MARKETS
PJM 2012 Average Market Prices
RT Prices minus DA Prices
Sorted Within DA Quartiles
($/MWH)
Table 3
Count
Average
Extension
Lowest
DA
Quartile
DA Higher
RT Higher
All Hours
1,604
584
2,193
-$4.292
$1.598
-$2.715
$ (6,884)
$
933
$ (5,951)
2nd
DA
Quartile
DA Higher
RT Higher
All Hours
1,670
528
2,200
-$2.686
$1.553
-$1.666
$ (4,486)
$
820
$ (3,665)
3rd
DA
Quartile
DA Higher
RT Higher
All Hours
1,567
625
2,195
-$3.803
$1.775
-$2.210
$ (5,959)
$ 1,109
$ (4,850)
Highest
DA
Quartile
DA Higher
RT Higher
All Hours
799
1,396
2,196
-$9.577
$17.991
$7.952
$ (7,652)
$ 25,115
$ 17,463
Table 3 effectively summarizes the data in Figure 4, using the same analytic tools as were used in Table
2. The hours across the bottom of Figure 4 are separated into quartiles, and sorted within each quartile by
whether the difference is positive or negative. In most quartiles, the DA price is dominant, in that the DA
price is generally higher than the RT price, in that the DA counts are generally greater than the RT counts.
Further, the DA average price for the entire quartile is generally greater than the RT average price,
resulting in negative average differentials for all the hours in the quartile. However, in the highest DA
quartile, that is, covering the data in the right quarter of Figure 4, there are relatively fewer hours in which
the DA price is higher, and the differential is $17.991/MWH when the RT price is higher versus a
differential of $7.952/MWH for the entire quartile.
The bias between the RT and DA markets is due the asymmetry in the way that electric systems are able
to respond to unanticipated changes in the supply demand equilibrium curve when the electric system is
strained. A lessening of that strain results in a movement along the generation marginal cost curve, where
there are other generators of similar cost structure to compete for the sale of electricity. However, when
the strain on the system increases, the supply demand equilibrium curve is poorly defined and subject to
the vagaries of the participants trying to optimize the results for participants loads and generators. This
optimization attempt is extremely critical when the system is at maximum and minimum loads, which is
when the DA prices are likely to be the highest and the lowest. The effect is likely to become more
noticeable during the minimums as the systems experience greater amounts of intermittent generation
such as solar and wind.
Additional work is needed on identifying those hours when the DA prices are likely to be extreme, and
whether such bias continued into 2013. Such work would allow participants to install hedging techniques
by taking greater positions in the DA markets that were then settled advantageously in the RT market.
Some of the work should include an analysis of the depth of the DA market, in that a large hedging
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VIRTUAL ENERGY: MAKING MONEY ON THE BIAS BETWEEN ISO DAY AHEAD
MARKETS AND REAL TIME MARKETS
position would likely influence the DA market and lessen the arbitrage potential with the RT market. The
influence of optimization efforts are likely to become more apparent in the left side of Figures 2 and 4,
both with the growth of renewable generation and as large base loaded generators realize the implications
of their bidding actions during such events. For instance, while the RT prices were higher for only 27%
of the lowest quartile, RT prices were higher for only 18% of the lowest decile, with the average price
differential being $6.30/MWH when the DA prices were higher and $1.76/MWH when the RT prices
were higher.
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