Arbitrage in Cost-Based Redispatch: Evidence from Germany

35 Pages Posted: 2 Aug 2021 Last revised: 20 Sep 2021

See all articles by Philip Schnaars

Philip Schnaars

University of Hamburg

Grischa Perino

University of Hamburg

Date Written: September 18, 2021

Abstract

The European Union's push towards market-based procurement of redispatch services has sparked fears of so called Inc-Dec-Gaming, i.e. the incentive to engage in arbitrage between the national wholesale market and the local redispatch market. The latter would increase both likelihood and severity of grid congestions. Such incentives might already be present in Germany where participation is mandatory and reimbursement based on costs if the marginal cost estimates are not accurate. This paper develops a method to identify such behavior. We test for the presence of Inc-Dec-Gaming at the plant level using a random forest prediction model and time series regressions based on a sample of German power plants. We do find evidence of arbitrage among a small cluster of German power plants.

Keywords: Redispatch, Inc-Dec-Gaming, Arbitrage, Congestion, Electricity

JEL Classification: Q42, Q47, Q41, C01

Suggested Citation

Schnaars, Philip and Perino, Grischa, Arbitrage in Cost-Based Redispatch: Evidence from Germany (September 18, 2021). Available at SSRN: https://ssrn.com/abstract=3890723 or http://dx.doi.org/10.2139/ssrn.3890723

Philip Schnaars (Contact Author)

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Grischa Perino

University of Hamburg ( email )

Welckerstr. 8
Hamburg, 20354
Germany

HOME PAGE: http://sites.google.com/site/gperinosite/

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