This article focuses on the design of balancing markets in Europe taking into account an increasing wind power penetration. In several European countries, wind generation is so far not burdened with full balancing responsibility. However, the more wind power penetration, the less bearable for the system not to allocate balancing costs to the responsible parties. Given the variability and limited predictability of wind generation, full balancing exposure is however only feasible conditionally to well-functioning balancing markets. On that account, recommendations ensuring an optimal balancing market design are formulated and their impact on wind generation is assessed. Taking market-based or cost-reflective imbalance prices as the main objective, it is advised that: (1) the imbalance settlement should not contain penalties or power exchange prices, (2) capacity payments should be allocated to imbalanced BRPs via an additive component in the imbalance price and (3) a cap should be imposed on the amount of reserves. Efficient implementation of the proposed market design may require balancing markets being integrated across borders.

a b s t r a c tIn Europe, market coupling stands for a further integration of wholesale trading arrangements across country borders. More specifically, it refers to the implicit auctioning of cross-border physical transmission rights via the hourly auctions for electric energy organized by power exchanges (PEXs) one day ahead of delivery. It therefore implies that the PEXs can optimize the clearing of their day-ahead auctions. Due to verticals in the aggregated order curves, the optimal solution can be settled at different prices. In order for prices to give correct locational signals for network development, generation and consumption, price coordination between exchanges is necessary. The paper illustrates this issue, its relevance and discusses how to deal with it.

Balancing services in Belgium and the Netherlands are procured and activated locally so far. However, the implementation of cross-border balancing trade between both countries is expected to entail significant benefits. The assessment in this paper illustrates that the implementation of a cross-border balancing market between Belgium and the Netherlands is a lucrative and achievable goal that does not entail unrealistic or overly expensive preconditions. Significant cost reductions could have occurred with cross-border balancing during the year 2008 -due to netting and cross-border procurement of relatively cheaper services. Restrictions imposed on cross-border balancing due to cross-border capacity constraints would have been rather small.

Following initiatives on the day-ahead and intra-day stage, a cross-border approach towards real-time balancing constitutes a logical next step in the process towards an Internal Electricity Market (IEM) in Europe. Determining the real-time price for energy on which market parties need to be able to rely for last resort supply, well designed cross-border balancing markets are a key element in an efficiently functioning IEM. For the moment, balancing market designs significantly differ between countries and a coordinated approach for cross-border exchange of balancing services is lacking. This paper identifies possible distortions following an insufficient harmonization of national designs and derives both minimal prerequisites and long term recommendations for the implementation of cross-border balancing in Europe.