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Design and regulation of balancing power auctions: an integrated market model approach

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  • Karl-Martin Ehrhart

    (Karlsruhe Institute of Technology (KIT), Germany)

  • Fabian Ocker

    (Karlsruhe Institute of Technology (KIT), Germany)

Abstract

We present an integrated market model which considers the dependencies between the wholesale market and the highly regulated balancing power markets. This fosters the understanding of the mechanisms of these markets and, thus, allows the evaluation of the designs of these markets and their interplay. In contrast to existing literature, in our model the prices on the different markets are interdependent and endogenously determined, which also applies to the switch from inframarginal suppliers to extramarginal suppliers. Linked to this, the implementation of a specific assignment of the suppliers to the different markets is according to their production costs and their ability to provide balancing power. We prove the existence of a market equilibrium, analyze its outcome and contrast this with German market data. Based on this model, we assess design changes, partly stipulated by recent European regulation. This includes uniform pricing as a common settlement rule (effect: no truthful bidding in general), standardized prequalification criteria (promising measure for cost reduction), market flexibilization via “free energy bids” (no increased competition) and the alternative score “mixed-price rule” (no effect on the equilibrium).

Suggested Citation

  • Karl-Martin Ehrhart & Fabian Ocker, 2021. "Design and regulation of balancing power auctions: an integrated market model approach," Journal of Regulatory Economics, Springer, vol. 60(1), pages 55-73, August.
  • Handle: RePEc:kap:regeco:v:60:y:2021:i:1:d:10.1007_s11149-021-09430-7
    DOI: 10.1007/s11149-021-09430-7
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Cartuyvels, Jacques & Bertrand, Gilles & Papavasiliou, Anthony, 2023. "Market Equilibria in Cross-Border Balancing Platforms," LIDAM Discussion Papers CORE 2023009, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Poplavskaya, Ksenia & Lago, Jesus & Strömer, Stefan & de Vries, Laurens, 2021. "Making the most of short-term flexibility in the balancing market: Opportunities and challenges of voluntary bids in the new balancing market design," Energy Policy, Elsevier, vol. 158(C).
    3. Fleck, Ann-Katrin & Anatolitis, Vasilios, 2023. "Achieving the objectives of renewable energy policy – Insights from renewable energy auction design in Europe," Energy Policy, Elsevier, vol. 173(C).
    4. Prakash, Abhijith & Bruce, Anna & MacGill, Iain, 2022. "Insights on designing effective and efficient frequency control arrangements from the Australian National Electricity Market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 161(C).
    5. Samuli Honkapuro & Jasmin Jaanto & Salla Annala, 2023. "A Systematic Review of European Electricity Market Design Options," Energies, MDPI, vol. 16(9), pages 1-26, April.
    6. Eicke, Anselm & Ruhnau, Oliver & Hirth, Lion, 2021. "Electricity balancing as a market equilibrium: An instrument-based estimation of supply and demand for imbalance energy," Energy Economics, Elsevier, vol. 102(C).

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    More about this item

    Keywords

    Balancing power; Market design and interdependence; Scoring rule; Settlement rule;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D6 - Microeconomics - - Welfare Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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