Strategic behavior in the German balancing energy mechanism: incentives, evidence, costs and solutions

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may ABSTRACTThis paper investigates the incentives market participants have in the German electricity balancing mechanism. Strategic over-and undersupply positions are the result of existing stochastic arbitrage opportunities between the spot market and the balancing mechanism. This strategic behavior can be clearly identified in aggregate market data. These structural imbalances increase the need for reserve capacity, raise system security concerns, and thus burden significant cost on the customers. More effective market designs include changes in the balancing mechanism, the reserve capacity and the intraday spot markets.JEL classification: L94, Q41, Q47

Interactions between the design of short-term electricity markets in the CWE region and power system flexibility

“…Ref. [22] analyzes incentives to behave strategically in the German balancing market, while [23] discusses its design together with historical data. Ref.…”

“…[3], [6], [14], [15], [32], [35], [42]. [3], [14], [16], [17], [18], [19], [20], [21], [22], [23], [34], [35], [41], [42], [43]. NL [10], [24], [32], [42].…”

Abuse of Dominance and Antitrust Enforcement in the German Electricity Market

“…In Germany, electricity generators are required to reserve a fraction of their capacity for the transmission system operators, which they can use to restore frequency in the electricity grid (Haucap et al, 2012). Wholesale electricity markets and balancing markets should be expected to be related as there exist arbitrage opportunities between the spot market and the balancing mechanism (Just and Weber, 2015).…”

“…Just and Weber (2015) quantify the effect of strategic arbitrage behavior between the German wholesale and balancing markets and find relatively modest effects. 11 Thus, although 11 Specifically, they find a "clear tendency that market participants use the arbitrage opportunity to fulfil their supply commitment with relatively cheap balancing energy when spot prices are relatively high, and vice versa.…”

“…It should be noted that imbalances did not exceed the contracted reserve capacity and that periods with extreme spot prices were not overly exploited as the incentives might suggest" (Just and Weber, 2015).…”