Contract Durations in the Electricity Market: Causal Impact of 15 Min Trading on the EPEX SPOT Market

39 Pages Posted: 5 Aug 2018

See all articles by Joscha Märkle-Huß

Joscha Märkle-Huß

University of Freiburg - Information Systems Research

Stefan Feuerriegel

ETH Zürich

Dirk Neumann

University of Freiburg

Date Written: September 22, 2017

Abstract

The European Power Exchange (EPEX) introduced two new products in 2011 and 2014 which reduce the delivery duration of electricity from 1 hour to 15-min intervals. These changes to the market design aim to better reflect the intermittent power generation from renewable energy sources. However, little is known about trading in shorter intervals and its impact on the existing market. As a remedy, our evaluation first shows that the market has quickly adopted the new 15-min contracts. Second, we estimate a Bayesian structural time series, which measures a causal decrease of electricity prices. Depending on the model specification, our results indicate that the reduction can be as high as 28% for existing hourly contracts subsequent to the introduction of 15-min trading. Third, the use of 15-min contracts coincides with intermittent power generation, as it incentivizes renewable energy providers to offer additional electricity. Altogether, our findings suggest that 15-min trading is used to balance the intra-hour volatility of renewable energy sources. Consequently, this presents a blueprint for policy-makers, who can attain similar price reductions and larger feed-ins from renewable energy sources without direct costs in all countries with high shares of renewable energy sources.

Keywords: Electricity Market; 15-Min Trading: Market Design; Contract Duration; Bayesian Structural Time Series; Policy Implications

Suggested Citation

Märkle-Huß, Joscha and Feuerriegel, Stefan and Neumann, Dirk, Contract Durations in the Electricity Market: Causal Impact of 15 Min Trading on the EPEX SPOT Market (September 22, 2017). Energy Economics, 2017. Available at SSRN: https://ssrn.com/abstract=3215376

Joscha Märkle-Huß

University of Freiburg - Information Systems Research ( email )

Kollegiengebäude II
Platz der Alten Synagoge
Freiburg, 79098
Germany

Stefan Feuerriegel (Contact Author)

ETH Zürich ( email )

Weinbergstr. 56/58
Zürich, 8092
Switzerland

HOME PAGE: http://www.mis.ethz.ch/

Dirk Neumann

University of Freiburg ( email )

Albert-Ludwigs-Universität Freiburg, Wirtscha.inf.
Kollegiengebäude II, Platz der Alten Synagoge
Freiburg im Breisgau, 79098
Germany

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