Well-functioning balancing markets: A prerequisite for wind power integration

Abstract

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.

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

“…Solutions to prevent the strategic behavior exist and their implications are investigated. Our analysis leads to different conclusions than Moeller et al (2011) and Vandezande et al (2010). The reasons for the apparent divergence are discussed at the end of this paper, showing that our findings add an important perspective to an effective market design at the core of the electricity system.…”

“…They find that strategic behavior is rarely profitable in the Netherlands and comes with large risks. Vandezande et al (2010) discuss different balancing designs by the use of simplified examples and conclude that a mechanism designed as a one-price system like in Germany without penalties or link to spot prices should be preferred. The aim of this paper is to extend the previous work and to increase the awareness about the insufficient German market design by studying explicitly the incentive for strategic behavior.…”

Balancing power and variable renewables: Three links

“…Similarly, capacity costs should not be socialized, but borne by those BRPs that caused the need for reservation (Vandezande et al 2010). Given the practical difficulties of implementing such a pricing rule under uncertainty, a pragmatic approach could be to allocate these costs as a mark-up on the imbalance price.…”

“…Vandezande et al (2010) discuss economic aspects of market design. Kristiansen (2007) and Bang et al (2012) provide a comprehensive survey of the Nordic balancing system while Ela et al (2011aEla et al ( , 2011b and NERC (2012) do the same for American systems.…”

“…Imbalance price mechanisms are nationally regulated and differ along several dimensions (Vandezande et al 2010, Borggrefe & Neuhoff 2011, Elexon 2013, ENTSO-E 2015:…”