Exploring the Impacts of Virtual Transactions in the PJM Wholesale Energy Market

Virtual Transactions have been a long-standing market construct in many two-settlement energy markets. Their design is intended to provide the market with price convergence, liquidity, market power mitigation and hedging mechanisms. However, there is a lack of empirical evidence to fully support or oppose these constructs. This paper seeks to provide empirical evidence to evaluate the effectiveness of virtual transactions in helping converge market prices using simulations of the PJM wholesale energy market clearing process. Results show that some virtual transactions do support the convergence of day-ahead and real-time energy market prices while others do not.