This paper outlines the fundamental features of the PJM day-ahead energy market and real-time energy market. The Day-ahead market is based on a voluntary least-cost security constrained unit commitment and dispatch with several fundamental design features that ensure the market is robust and competitive. This market offers market participants the option to lock in energy and transportation charges at binding day-ahead prices. The flexibility of the day-ahead market rules provide all participants with equal access to the day-ahead market through consistent price signals and by providing all participants with the ability to submit virtual demand bids and virtual supply offers. These mechanisms promote liquidity in the markets. Economic incentives drive the convergence of the day-ahead and real-time market prices. The real-time energy market is based on security-constrained economic dispatch and is cleared based on the actual system operating conditions. The LMP-based markets support reliable grid operations through efficient price signals.

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This paper discusses the implementation of successful computational innovations that have occurred to support the evolution of the PJM competitive wholesale electricity market. These innovations include the implementation of Mixed-integer programming based unit commitment, multistage real-time dispatch and software to support our perfect dispatch concept. The paper discusses the efficiency gains that the market experienced when these innovations were successfully incorporated into the market clearing processes at PJM. The paper will also overview computational challenges that must be overcome to support further evolution of the competitive wholesale and retail electricity markets.

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