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Competition in Germany's minute reserve power market: An econometric analysis

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  • Haucap, Justus
  • Heimeshoff, Ulrich
  • Jovanovic, Dragan

Abstract

The German reserve power market was subject to important regulatory changes in recent years. A new market design was created by synchronization and interconnection of the four control areas. In this paper, we analyze whether or not the reforms led to lower prices for minute reserve power (MRP). In contrast to existing papers, we use a unique panel dataset to account for unobserved heterogeneity between the four German regional markets. Moreover, we control for endogeneity by using weather data as instruments for electricity spot market prices. We find that the reforms were jointly successful in decreasing MRP prices leading to substantial cost savings for the transmission system operators.

Suggested Citation

  • Haucap, Justus & Heimeshoff, Ulrich & Jovanovic, Dragan, 2012. "Competition in Germany's minute reserve power market: An econometric analysis," DICE Discussion Papers 75, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:75
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    References listed on IDEAS

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    1. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, March.
    2. Duso, Tomaso & Roller, Lars-Hendrik, 2003. "Endogenous deregulation: evidence from OECD countries," Economics Letters, Elsevier, vol. 81(1), pages 67-71, October.
    3. Riedel, Stefan & Weigt, Hannes, 2007. "German Electricity Reserve Markets," MPRA Paper 65664, University Library of Munich, Germany.
    4. Christopher F Baum, 2005. "Stata: The language of choice for time-series analysis?," Stata Journal, StataCorp LP, vol. 5(1), pages 46-63, March.
    5. Müller, Gernot & Rammerstorfer, Margarethe, 2008. "A theoretical analysis of procurement auctions for tertiary control in Germany," Energy Policy, Elsevier, vol. 36(7), pages 2620-2627, July.
    6. Swider, Derk J. & Weber, Christoph, 2007. "Bidding under price uncertainty in multi-unit pay-as-bid procurement auctions for power systems reserve," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1297-1308, September.
    7. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    8. Perron, Pierre & Vogelsang, Timothy J, 1992. "Testing for a Unit Root in a Time Series with a Changing Mean: Corrections and Extensions," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 467-470, October.
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    Citations

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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.
    2. Hirth, Lion & Ziegenhagen, Inka, 2015. "Balancing power and variable renewables: Three links," Renewable and Sustainable Energy Reviews, Elsevier, vol. 50(C), pages 1035-1051.
    3. 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).
    4. Chaves-Ávila, José Pablo & van der Veen, Reinier A.C. & Hakvoort, Rudi A., 2014. "The interplay between imbalance pricing mechanisms and network congestions – Analysis of the German electricity market," Utilities Policy, Elsevier, vol. 28(C), pages 52-61.
    5. Kumbartzky, Nadine & Schacht, Matthias & Schulz, Katrin & Werners, Brigitte, 2017. "Optimal operation of a CHP plant participating in the German electricity balancing and day-ahead spot market," European Journal of Operational Research, Elsevier, vol. 261(1), pages 390-404.
    6. Lion Hirth & Inka Ziegenhagen, 2013. "Control Power and Variable Renewables A Glimpse at German Data," Working Papers 2013.46, Fondazione Eni Enrico Mattei.

    More about this item

    Keywords

    Competition; Frequency Control; Minute Reserve Power; Regulation; Productive Efficiency; Welfare;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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