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Auction Design for Local Reserve Energy Markets

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  • Rosen, Christiane

    ()
    (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))

  • Madlener, Reinhard

    ()
    (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))

Abstract

In this paper we develop an auction mechanism that is designed for a local energy market. It aims to enable regionally or virtually restricted trading of ancillary services, which enhances the position of the balance group responsible party beyond that of simple accounting. Furthermore, it makes local market participants somewhat more independent from the transmission grid operator, but at the same time provides incentives for investments in distributed generation technologies. A wider spread of these technologies can help to save CO2 emissions, while at the same time a part of them can also be used to counter the fluctuations of energy from volatile renewable sources, such as wind and solar power. Because of their relatively high margins and small share in total production, ancillary services are well-suited for a remuneration scheme. Participants in the auction are, thus, private households, which imposes specific design characteristics on the auction. Most importantly, it needs to be transparent and easy to understand, as homeowners will typically not have the insights of a professional trader as well as lack a similar position and motivation. Also, the confinement to a single balance group, i.e. a local market, means that especially in the beginning of the trading only a small number of bidders can be expected. Therefore, competition will initially be limited, so that the auction design needs to be adapted accordingly. In order to test the performance of the proposed auction market design under varying information policies, a simple agent-based simulation program has been developed. We find that the theoretical predictions hold and that competition quickly leads to price convergence.

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Bibliographic Info

Paper provided by E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) in its series FCN Working Papers with number 7/2012.

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Length: 42 pages
Date of creation: Jul 2012
Date of revision: Mar 2013
Handle: RePEc:ris:fcnwpa:2012_007

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Web page: http://www.eonerc.rwth-aachen.de/fcn
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Related research

Keywords: auction; ancillary services; local market; agent-based simulation; distributed generation;

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References

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  1. Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo & Möst, Dominik, 2007. "Agent-based simulation of electricity markets: a literature review," Working Papers "Sustainability and Innovation" S5/2007, Fraunhofer Institute for Systems and Innovation Research (ISI).
  2. Rassenti, Stephen J & Smith, Vernon L & Wilson, Bart J, 2003. "Discriminatory Price Auctions in Electricity Markets: Low Volatility at the Expense of High Price Levels," Journal of Regulatory Economics, Springer, vol. 23(2), pages 109-23, March.
  3. Richard Engelbrecht-Wiggans & Charles M. Kahn, 1998. "Multi-unit auctions with uniform prices," Economic Theory, Springer, vol. 12(2), pages 227-258.
  4. Swider, Derk J. & Weber, Christoph, 2007. "Bidding under price uncertainty in multi-unit pay-as-bid procurement auctions for power systems reserve," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1297-1308, September.
  5. Weidlich, Anke & Veit, Daniel, 2008. "A critical survey of agent-based wholesale electricity market models," Energy Economics, Elsevier, vol. 30(4), pages 1728-1759, July.
  6. Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-83, September.
  7. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
  8. Bernard, John C. & Mount, Timothy D. & Schulze, William D., 1998. "Alternative Auction Institutions For Electric Power Markets," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), October.
  9. Ventosa, Mariano & Baillo, Alvaro & Ramos, Andres & Rivier, Michel, 2005. "Electricity market modeling trends," Energy Policy, Elsevier, vol. 33(7), pages 897-913, May.
  10. Roth, Alvin E. & Erev, Ido, 1995. "Learning in extensive-form games: Experimental data and simple dynamic models in the intermediate term," Games and Economic Behavior, Elsevier, vol. 8(1), pages 164-212.
  11. Lawrence M. Ausubel, 2004. "An Efficient Ascending-Bid Auction for Multiple Objects," American Economic Review, American Economic Association, vol. 94(5), pages 1452-1475, December.
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Citations

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Cited by:
  1. Dergiades, Theologos & Madlener, Reinhard & Christofidou, Georgia, 2012. "The Nexus between Natural Gas Spot and Futures Prices at NYMEX: Do Weather Shocks and Non-Linear Causality in Low Frequencies Matter?," FCN Working Papers 17/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Sep 2013.
  2. Rohlfs, Wilko & Madlener, Reinhard, 2013. "Challenges in the Evaluation of Ultra-Long-Lived Projects: Risk Premia for Projects with Eternal Returns or Costs," FCN Working Papers 13/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  3. Sorda, Giovanni & Madlener, Reinhard, 2012. "Cost-Effectiveness of Lignocellulose Biorefineries and their Impact on the Deciduous Wood Markets in Germany," FCN Working Papers 8/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  4. Rohlfs, Wilko & Madlener, Reinhard, 2013. "Optimal Power Generation Investment: Impact of Technology Choices and Existing Portfolios for Deploying Low-Carbon Coal Technologies," FCN Working Papers 12/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  5. Bruns, Stephan B. & Gross, Christian, 2013. "What if energy time series are not independent? Implications for energy-GDP causality analysis," Energy Economics, Elsevier, vol. 40(C), pages 753-759.
  6. Rosen, Christiane & Madlener, Reinhard, 2013. "An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods," FCN Working Papers 8/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Nov 2013.
  7. Palmer, Johannes & Sorda, Giovanni & Madlener, Reinhard, 2013. "Modeling the Diffusion of Residential Photovoltaic Systems in Italy: An Agent-based Simulation," FCN Working Papers 9/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  8. Rohlfs, Wilko & Madlener, Reinhard, 2012. "Assessment of Clean-Coal Strategies: The Questionable Merits of Carbon Capture-Readiness," FCN Working Papers 18/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).

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