A wholesale electricity market exists when competing generators offer their electricity output to retailers. The retailers then re-price the electricity and take it to market. While wholesale pricing used to be the exclusive domain of large retail suppliers, increasingly markets like New England are beginning to open up to end-users. Large end-users seeking to cut out unnecessary overhead in their energy costs are beginning to recognize the advantages inherent in such a purchasing move. Consumers buying electricity directly from generators is a relatively recent phenomenon.
Buying wholesale electricity is not without its drawbacks (market uncertainty, membership costs, set up fees, collateral investment, and organization costs, as electricity would need to be bought on a daily basis), however, the larger the end user's electrical load, the greater the benefit and incentive to make the switch.
For an economically efficient electricity wholesale market to flourish it is essential that a number of criteria are met. Professor William Hogan of Harvard University has identified these criteria. Central to his criteria is a coordinated spot market that has "bid-based, security-constrained, economic dispatch with nodal prices". Other academics such as Professors Shmuel Oren and Pablo Spiller of the University of California, Berkeley have proposed other criteria. Variants of Professor Hogan's model have largely been adopted in the US, Australia and New Zealand.
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