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

See all articles by Sebastian Just

Sebastian Just

University of Duisburg-Essen

Christoph Weber

University of Duisburg-Essen

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

Just, Sebastian and Weber, Christoph, Strategic Behavior in the German Balancing Energy Mechanism: Incentives, Evidence, Costs and Solutions (October 28, 2012). EWL Working Paper No. 04/2012, Available at SSRN: https://ssrn.com/abstract=2170311 or http://dx.doi.org/10.2139/ssrn.2170311

Sebastian Just (Contact Author)

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Christoph Weber

University of Duisburg-Essen ( email )

Universitätsstraße 2
Essen, 45141
Germany

HOME PAGE: http://www.ewl.wiwi.uni-due.de

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