Generally, there are three ways of organizing wholesale electricity trades in an unbundled sector to establish wholesale prices and related terms of delivery:
A single buyer model is generally employed as a steppingstone towards a fully competitive wholesale generation market. Under the single buyer model, independent power producers sell power under long-term contracts to a single, often public, entity. In this way, the single buyer, by serving as the counterparty to all contracts with generators, functions as essentially a purchasing agent on behalf of distribution companies.
A bilateral contracts-based market is a private, decentralized process, where two parties agree to trade power between each other at an undisclosed price. As a result, bilateral contracting results in a less transparent market (unless provisions are put in place to require disclosure of the details of bilateral contracts), where buyers of electricity pay differentiated prices based on their negotiating power, delivery terms, volumes, etc. Participants in such a market likely include large industrial companies and distribution companies.
A power pool-based (spot) market allows greater transparency and clearer price discovery, as the power pool coordinates dispatch between different companies. Under this model, generators sell into a power pool and receive the pool price, while buyers buy from the pool at the pool price, and are thus exposed to the same prices. Energy trading in pool-based markets may be conducted on a real-time or a day-ahead basis.
Single buyer model
Independent power producers sell power under long-term contracts to a single (often public) entity
Bilateral contracts-based market
A private, decentralized process where two parties agree to trade power between each other at an undisclosed price
Power pool-based (spot) market
Generators sell into a power pool and receive the pool price, while buyers buy from the pool at the pool price
