In the context of the markets liberalisation process, where the activities of the network operators are considered natural monopolies and are therefore subject to economic regulation, the production and selling of electricity are open to competition.
The activity of producing electricity in a free market regime is associated to a wholesale market, where the agents involved in the production ensure the placement of that production and the agents who need to obtain supplies of electricity seek to acquire it, whether it be to satisfy the portfolio of supplies to end customers, or for personal consumption. The trading activity is associated to a retail market, where trading agents compete to secure the supply to end customers.
To these core activities, the liberalisation model for the electricity sector has added the existence of organised markets which are constituted as trading platforms that tend to be independent from traditional agents who act in the production and marketing of electricity.
The operation of the electricity wholesale market in the current development framework of MIBEL is based on the existence of a set of contracting modalities that complement each other. Therefore, the MIBEL wholesale market currently includes:
- A forward market in which commitments are established for the future production and purchase of electricity. This market can carry out physical settlement (energy delivery) or financial settlement (compensation of the underlying monetary values of the negotiation).
- An on-demand contracting market with a daily contracting component and an adjusted intraday component in which electricity sales (production) and buying programmes are established for the day following the negotiation.
- An ancillary services market which carries out balance adjustments to the production and consumption of electricity and which operates in real time.
- A bilateral contracting market in which the agents buy and sell electricity for the various timeframes. The supply of electricity in Portugal is yet characterised in what concerns the subjacent contracting model and this particular analysis became more sensitive since the 1st of July 2007, when the Portuguese agents were able to participate in MIBEL's spot market.
Bilateral contracting can also make use of other market tools, such as free production capacity auctions (VPP). These auctions are regulated mechanisms for placing the production capacity of a given agent on the market, normally with the objective of increasing competition in the electricity market.
The MIBEL daily market is a platform where electricity is traded for delivery the day following that of the negotiation. This market forms the price for each one of the 24 hours of each day and for each one of the 365 or 366 days of each year. The market price at each hour is found through a process where the price of the production offers are placed in ascending order (supply curve) and the price of the electricity buying offers are placed in descending order (demand curve) for the same time. The market price (corresponding to the crossing of the supply and demand curves on a graph) is the lowest price which guarantees that supply satisfies demand. The operating rules of this organised market are specific to the market operator (OMEL).
The development of the process for the liberalisation of the electricity sector dictated the opening of the trading market, and, in the present framework, any consumer can freely choose their electricity supplier.
The evolution of the retail market conditions, namely pertaining in what concerns the price of electricity, is clearly restricted by the evolution of the wholesale market, since the latter determines a substantial part (energy costs) of the total costs of the supply of electricity.