Strategic Behavior in the German Balancing Energy Mechanism: Incentives, Evidence, Costs and Solutions
EWL Working Paper No. 04/2012
25 Pages Posted: 5 Feb 2015
Date Written: October 28, 2012
Abstract
This paper investigates the incentives market participants have in the German electricity balancing mechanism. Strategic over- and under-supply 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.
Keywords: Electricity market design, balancing mechanism, reserve capacity, strategic behavior
JEL Classification: L94, Q41, Q47
Suggested Citation: Suggested Citation