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Strategic Behavior in the German Balancing Energy Mechanism: Incentives, Evidence, Costs and Solutions

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  • Sebastian Just

    ()

  • Christoph Weber

    ()
    (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)

Abstract

This 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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File URL: http://www.wiwi.uni-due.de/fileadmin/fileupload/BWL-ENERGIE/Arbeitspapiere/RePEc/pdf/wp1204_StrategicBehaviorInTheGermanBalancingMechanism.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by University of Duisburg-Essen, Chair for Management Science and Energy Economics in its series EWL Working Papers with number 1204.

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Date of creation: Oct 2012
Date of revision: Oct 2012
Handle: RePEc:dui:wpaper:1204

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Phone: 0201 - 183 3633
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Web page: http://www.ewl.wiwi.uni-due.de
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Related research

Keywords: Electricity market design; balancing mechanism; reserve capacity; strategic behavior;

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  1. 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.
  2. 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.
  3. Rammerstorfer, Margarethe & Wagner, Christian, 2009. "Reforming minute reserve policy in Germany: A step towards efficient markets?," Energy Policy, Elsevier, vol. 37(9), pages 3513-3519, September.
  4. 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.
  5. 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.
  6. 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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