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Forward Contract Effects in the Italian Wholesale Electricity Market

This paper proposes an agent-based computational model of the Italian wholesale electricity market where Generation Companies (GenCos) sign forward contracts and then accordingly submit bids in a Day-Ahead spot Market (DAM). The DAM clearing mechanism considers realistic physical constraints of the Italian high-voltage transmission network, thus determining realistic zonal market prices. The global demand is determined by the different Load Serving Entities (LSE) distributed into the grid and it is estimated by historical data in order to reproduce a realistic Italian market scenario. The computational experiments point out that forward contracts influence the supply agents bidding strategies in the day-ahead market. Furthermore, empirical validation at a macro-level is performed. In particular, volatility and level of prices in the real Italian market are compared with computational outcomes. Level of prices are in good correspondence, whereas volatility is in average significantly lower in the simulation results. However, the volatility and the level of prices are less than those resulting of in the case GenCos without hedging strategy.