Benefits of regional coordination of balancing capacity markets in future European electricity markets

In the face of growing balancing requirements, there is increased interest in cross-border coordination of balancing capacity markets. Despite improved coordination of balancing energy, only limited progress has been made on coordinating balancing capacity procurement and sizing. That is in part because the coordination of procurement and sizing is more complex as it requires the reservation of cross-zonal transmission capacity. In this paper, a model to simulate a joint day-ahead energy and balancing capacity market clearing is presented, with coordinated procurement and sizing of balancing capacity, and co-optimized allocation of cross-zonal transmission capacity. We apply this model to a highly renewable Central Western European-based case study to illustrate how regional coordination of balancing capacity markets generates benefits. Results show that balancing capacity coordination enables a more cost-effective day-ahead scheduling of electricity production. Notably, the scheduling of peak-load technologies is impacted. Potentially, the greatest benefit of balancing capacity coordination lies in its ability to substantially reduce the need for back-up capacity. Sharing infrequently used generation capacity across borders rather than having individual self-sufficient control areas, especially when paired with alternative sources of balancing capacity (e.g., demand response), could greatly reduce generation capacity needs.