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Market design for the procurement of reactive power: the current state in Germany

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  • Anna Pechan
  • Marius Buchmann

Abstract

The market-based procurement of system services for network operators is gaining momentum in the current debate about the future market design in the energy sector. Since current sources of reactive power are primarily fossil-fuel power plants which will not be available in a carbon neutral energy system, reactive power will be sources from distributed assets in the electricity networks. The German regulator has proposed new rules for reactive power procurement, which are based on three pillars: The technical connection agreements, fully integrated network components owned by the network operators and market-based procurement. While this approach is primarily aiming at the reactive power demand on the transmission grid level, assets from the medium voltage grid can participate in this process as well. We evaluate this approach from an economic perspective and conclude that while such a three-pillar system can secure an effective provision of reactive power, the efficiency heavily depends on the regulatory system and that it provides the correct incentives for the network operator.

Suggested Citation

  • Anna Pechan & Marius Buchmann, 2023. "Market design for the procurement of reactive power: the current state in Germany," Bremen Energy Working Papers 0046, Bremen Energy Research.
    • Handle: RePEc:bei:00bewp:0046
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    File URL: https://bremen-energy-research.de/wp-content/bewp/bewp46.pdf
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    References listed on IDEAS

    as
    1. Anaya, Karim L. & Pollitt, Michael G., 2020. "Reactive power procurement: A review of current trends," Applied Energy, Elsevier, vol. 270(C).
    2. Karim L. Anaya & Michael G. Pollitt, 2021. "How to Procure Flexibility Services within the Electricity Distribution System: Lessons from an International Review of Innovation Projects," Energies, MDPI, vol. 14(15), pages 1-26, July.
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    More about this item

    Keywords

    resilience; reactive power; electricity; network; market design;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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