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Tender Frequency and Market Concentration in Balancing Power Markets

Author

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  • Knaut, Andreas

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

  • Obermüller, Frank

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

  • Weiser, Florian

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

Abstract

Balancing power markets ensure the short-term balance of supply and demand in electricity markets and their importance may increase with a higher share of fluctuating renewable electricity production. While it is clear that shorter tender frequencies, e.g. daily or hourly, are able to increase the efficiency compared to a weekly procurement, it remains unclear in which respect market concentration will be affected. Against this background, we develop a numerical electricity market model to quantify the possible effects of shorter tender frequencies on costs and market concentration. We find that shorter time spans of procurement are able to lower the costs by up to 15%. While market concentration decreases in many markets, we – surprisingly – identify cases in which shorter time spans lead to higher concentration.

Suggested Citation

  • Knaut, Andreas & Obermüller, Frank & Weiser, Florian, 2017. "Tender Frequency and Market Concentration in Balancing Power Markets," EWI Working Papers 2017-4, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
  • Handle: RePEc:ris:ewikln:2017_004
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    File URL: http://www.ewi.uni-koeln.de/fileadmin/user_upload/Publikationen/Working_Paper/EWI_WP_17_04_Tender_Frequency_and_Market_Concentration.pdf
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    References listed on IDEAS

    as
    1. Bushnell, James B & Oren, Shmuel S, 1994. "Bidder Cost Revelation in Electric Power Auctions," Journal of Regulatory Economics, Springer, pages 5-26.
    2. William W. Hogan, 1997. "A Market Power Model with Strategic Interaction in Electricity Networks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 107-141.
    3. Sebastian Just, 2011. "Appropriate contract durations in the German markets for on-line reserve capacity," Journal of Regulatory Economics, Springer, pages 194-220.
    4. Heim, Sven & Götz, Georg, 2013. "Do pay-as-bid auctions favor collusion? Evidence from Germany's market for reserve power," ZEW Discussion Papers 13-035, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Justus Haucap, Ulrich Heimeshoff, and Dragan Jovanovic, 2014. "Competition in Germany's Minute Reserve Power Market: An Econometric Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    6. Kenneth G. Elzinga & David E. Mills, 2011. "The Lerner Index of Monopoly Power: Origins and Uses," American Economic Review, American Economic Association, pages 558-564.
    7. 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, pages 161-183.
    8. Just, Sebastian & Weber, Christoph, 2008. "Pricing of reserves: Valuing system reserve capacity against spot prices in electricity markets," Energy Economics, Elsevier, pages 3198-3221.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Casimir Lorenz & Clemens Gerbaulet, 2017. "Wind Providing Balancing Reserves: An Application to the German Electricity System of 2025," Discussion Papers of DIW Berlin 1655, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    Balancing Power; Market Design; Market Concentration; Tender Frequency; Provision Duration; Mixed Integer Programming;

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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