Strategic Behavior in the German Balancing Energy Mechanism: Incentives, Evidence, Costs and Solutions
AbstractThis paper investigates the incentives market participants have in the German electricity balancing mechanism. Strategic over- and undersupply positions are the result of existing stochastic arbitrage opportunities between the spot market and the balancing mechanism. This strategic behavior can be clearly identified in aggregate market data. These structural imbalances increase the need for reserve capacity, raise system security concerns, and thus burden significant cost on the customers. More effective market designs include changes in the balancing mechanism, the reserve capacity and the intraday spot markets.
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Bibliographic InfoPaper provided by University of Duisburg-Essen, Chair for Management Science and Energy Economics in its series EWL Working Papers with number 1204.
Date of creation: Oct 2012
Date of revision: Oct 2012
Electricity market design; balancing mechanism; reserve capacity; strategic behavior;
Find related papers by JEL classification:
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply
- Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
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- Sebastian Just, 2011. "Appropriate contract durations in the German markets for on-line reserve capacity," Journal of Regulatory Economics, Springer, vol. 39(2), pages 194-220, April.
- Just, Sebastian & Weber, Christoph, 2008. "Pricing of reserves: Valuing system reserve capacity against spot prices in electricity markets," Energy Economics, Elsevier, vol. 30(6), pages 3198-3221, November.
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- Bushnell, James B & Oren, Shmuel S, 1994. "Bidder Cost Revelation in Electric Power Auctions," Journal of Regulatory Economics, Springer, vol. 6(1), pages 5-26, February.
- Vandezande, Leen & Meeus, Leonardo & Belmans, Ronnie & Saguan, Marcelo & Glachant, Jean-Michel, 2010. "Well-functioning balancing markets: A prerequisite for wind power integration," Energy Policy, Elsevier, vol. 38(7), pages 3146-3154, July.
- Möller, Christoph & Rachev, Svetlozar T. & Fabozzi, Frank J., 2011. "Balancing energy strategies in electricity portfolio management," Energy Economics, Elsevier, vol. 33(1), pages 2-11, January.
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