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Implementation of scarcity pricing without co-optimization in European energy-only balancing markets

Author

Listed:
  • Papavasiliou, Anthony

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

  • Cartuyvels, Jacques

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

  • Bertrand, Gilles
  • Marien, Alain

Abstract

The implementation of scarcity pricing is underway in the Belgian balancing market. The market design proposed in this paper aims at transposing the first principles of scarcity pricing theory to the boundary conditions of European balancing markets. One relevant boundary condition is the absence of real-time co-optimization of energy and reserves in Europe. As international experience demonstrates, the fact that energy and reserves are not co-optimized in balancing markets does not preclude the implementation of scarcity pricing. The mechanism can be implemented implicitly, and a concrete path has been proposed in the context of the Belgian balancing market. The Belgian design proposal, which is based on the implicit trading of reserve in real time, has raised questions related to financial implications for market stakeholders, the pricing of multiple reserve products, cross-border interactions, the financing of the mechanism, compatibility with EU law, and the coexistence of the proposed mechanism with capacity markets. We attempt to address these questions in the present work by drawing comparisons between the explicit co-optimization of energy and reserves and the implicit trading of reserve capacity.

Suggested Citation

  • Papavasiliou, Anthony & Cartuyvels, Jacques & Bertrand, Gilles & Marien, Alain, 2023. "Implementation of scarcity pricing without co-optimization in European energy-only balancing markets," LIDAM Reprints CORE 3269, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:3269
    DOI: https://doi.org/10.1016/j.jup.2022.101488
    Note: In: Utilities Policy, 2023, vol. 81, 101488
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    Cited by:

    1. Mou, Yuting & Papavasiliou, Anthony & Hartz, Katharina & Dusolt, Alexander & Redl, Christian, 2023. "An analysis of shortage pricing and capacity remuneration mechanisms on the pan-European common energy market," Energy Policy, Elsevier, vol. 183(C).

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