Buyers and sellers are authorized to trade bilaterally. Although the trades need to be approved by the system operator, they are free to negotiate about the prices and quantities. It is remarkable that most of these trades are based on long term contracts. Only the authorized sellers and buyers could trade in the bilateral contracts environment. The market & system operator receive the contractual power details that should be transferred between the bilateral contract parties.
The quantity of power which is sold bilaterally will be omitted from the sellers' bidding curves in the day ahead market clearing process. In fact, the portion of the power that has been sold is considered as the first priority to be allocated to the power plants in the day-ahead market optimization problem. To do so, the bidding price associated to this portion of power is set to zero regardless of the price that has been offered by the power plant. The buyers also will not imposed to pay any additional cost after the day ahead market settlement, for the power that they purchased bilaterally.