Economic Interactions Between Electricity Reserve Markets and Wholesale Electricity Markets

Wieschhaus, Lars; Weigt, Hannes

doi:10.2139/ssrn.1285434

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Economic Interactions Between Electricity Reserve Markets and Wholesale Electricity Markets

Electricity Markets Working Paper No. WP-EM-30

17 Pages Posted: 16 Oct 2008

See all articles by Lars Wieschhaus

Hannes Weigt

University of Basel - Center for Economic Science

Date Written: October 16, 2008

Abstract

This paper analyzes the interdependence of reserve and spot markets for electricity applying equilibrium models. We develop a Cournot model to analyze the impact of different pricing mechanisms at the reserve market (uniform and pay-as-bid) on spot market prices. Furthermore, we show how the demand requirement for reserve capacities can drive prices in the spot market. The models are tested using a dataset of the German electricity market. One result is that a more competitive reserve market helps to keep prices on the spot market low.

Keywords: electricity, reserve market, Cournot, pay-as-bid, Germany

JEL Classification: L94

Suggested Citation: Suggested Citation

Wieschhaus, Lars and Weigt, Hannes, Economic Interactions Between Electricity Reserve Markets and Wholesale Electricity Markets (October 16, 2008). Electricity Markets Working Paper No. WP-EM-30, Available at SSRN: https://ssrn.com/abstract=1285434 or http://dx.doi.org/10.2139/ssrn.1285434