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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

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. Clear indications for strategic behavior can be observed in aggregate market data. These structural imbalances increase the need for reserve capacity, raise system security concerns, and therefore place significant costs on consumers. The underlying problem is the disconnect between spot market, reserve capacity market and balancing mechanism. Alternative market design options discussed in this paper suggest better alignment between these markets/mechanisms. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Sebastian Just & Christoph Weber, 2015. "Strategic behavior in the German balancing energy mechanism: incentives, evidence, costs and solutions," Journal of Regulatory Economics, Springer, vol. 48(2), pages 218-243, October.
    • Handle: RePEc:kap:regeco:v:48:y:2015:i:2:p:218-243
    DOI: 10.1007/s11149-015-9270-6
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    References listed on IDEAS

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    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; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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