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Don't forget flexibility contracts when redesigning short-term electricity markets

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  • Van de Sande Araujo, Felipe
  • Bjørndal, Endre
  • Fleten, Stein-Erik
  • Gabriel, Steven A.
  • Tjeransen, Carl Fredrik

Abstract

This paper demonstrates that sequentially cleared electricity markets may provide look-ahead benefits equivalent to what is seen in centrally dispatched systems when the market for flexibility is complete. Power systems that use sequentially cleared auctions for short-term operations might suffer from resource waste because of insufficient look-ahead to unexpected (high or low) renewable-based generation in real-time, which leads to dispatches that are costly to change. We formulate the flexibility market as bilateral contracts, which ensure sufficient flexible capacity at the first-stage market phase and adhere to sequential clearing. Such contracts are arranged so that surplus or deficit renewable generation is physically fully compensated by a flexible generator. Our findings contribute to the electricity market design debate and support the current design of European electricity markets.

Suggested Citation

  • Van de Sande Araujo, Felipe & Bjørndal, Endre & Fleten, Stein-Erik & Gabriel, Steven A. & Tjeransen, Carl Fredrik, 2025. "Don't forget flexibility contracts when redesigning short-term electricity markets," Energy Economics, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:eneeco:v:151:y:2025:i:c:s0140988325008102
    DOI: 10.1016/j.eneco.2025.108980
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