Day-Ahead Market Bidding Taking the Balancing Power Market Into Account
21 Pages Posted: 12 Aug 2019 Last revised: 31 Aug 2022
Date Written: August 8, 2019
Abstract
Generation companies with controllable units put considerable analysis into the process of bidding into the day-ahead markets for electricity. This article investigates the gain of coordinating price-taking bids to the day-ahead electricity market (DA) and sequentially cleared energy-only markets,
such as the Nordic balancing market (BM). A technically detailed case study from the Nordic market is presented.We find that coordinated bidding is hardly worthwhile under current market conditions, but that only a modest increase in the demand for balancing energy will make
coordination profitable. If the supply curve for balancing energy is convex, so that the cost of balancing energy is asymmetric, the gains will be even higher. Finally, we find that day-ahead market bid curves that result from coordinated instances provide extra supply at low prices, and
lower supply at high prices, compared to sequential bids. This is rational given the anticipated opportunities that the balancing market offers, however, it makes day-ahead bidding appear to exploit market power.
Keywords: hydroelectric power, bidding, balancing power, market power, stochastic optimization
JEL Classification: C44, C61
Suggested Citation: Suggested Citation