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We present an integrated market model which considers the dependencies between the wholesale market and the highly regulated balancing power markets. This fosters the understanding of the mechanisms of these markets and, thus, allows the evaluation of the designs of these markets and their interplay. In contrast to existing literature, in our model the prices on the different markets are interdependent and endogenously determined, which also applies to the switch from inframarginal suppliers to extramarginal suppliers. Linked to this, the implementation of a specific assignment of the suppliers to the different markets is according to their production costs and their ability to provide balancing power. We prove the existence of a market equilibrium, analyze its outcome and contrast this with German market data. Based on this model, we assess design changes, partly stipulated by recent European regulation. This includes uniform pricing as a common settlement rule (effect: no truthful bidding in general), standardized prequalification criteria (promising measure for cost reduction), market flexibilization via “free energy bids” (no increased competition) and the alternative score “mixed-price rule” (no effect on the equilibrium).

The shift towards renewable energies is accompanied by great volatility on the supply side, demanding European-wide instead of national balancing services. For the integrated European procurement of balancing reserves, the European Commission proposes a multi-attributive auction mechanism which is very similar to the current German auction. The key difference, however, is a switch from pay-as-bid to uniform pricing. We develop a game-theoretical model of the current German and the future European balancing market design. Both market designs have desirable economic properties in their one-shot version, i.e., an efficient auction outcome and competitive prices. We show that a switch to uniform pricing does not induce bidders to report their true costs in their bids, but leads to underbidding. We contrast the equilibrium outcomes with German market data and find a substantial discrepancy, i.e., non-competitive prices. We provide a game-theoretical grounded explanation that is based on the regular repetition of the auction combined with the invariant supplier side.

In the context of the market consultation on the introduction of voluntary bids in German balancing reserve markets (BRM), this paper provides an overview over the game-theoretical and practical implications of voluntary bids as well as of alternative designs. Key design elements are analyzed in order to end up with a market design proposal that guarantees the desirable properties, such as market efficiency and the integration of renewable energy sources, and avoids malfunctioning of the market. Daring a look on neighboring markets, this paper sets the status quo in the BRM design discussion and fosters the integration of European BRM.

This paper provides answers to questions raised by Hirth and Ziegenhagen [1] regarding the “German paradox” in the balancing power markets. We show that in spite of the increasing energy production from variable renewable energy sources, there is no need for a higher demand of balancing power in Germany because adaptations in the energy market design were undertaken and Grid Control Cooperations led to immense efficiency savings. Additionally, we investigate the price developments in the German Secondary balancing power market. We find evidence that the suppliers coordinate on a price level which is (far) above the competitive level and that they orientate their power bids towards previous auction prices.

Kurz vor dem Beschluss des Strommarktgesetzes am 22. Juni 2016 vollzog das Bundesministerium fur Wirtschaft und Energie (BMWi) in letzter Minute eine Kehrtwende bei der Beschaffung neu zu errichtender Anlagen fur die Netzreserve. Diese wird nun nicht mehr, wie ursprunglich vorgesehen, uber ein gesetzlich vorgeschriebenes wettbewerbliches Ausschreibungsverfahren organisiert. Stattdessen wird die Verantwortung fur die Beschaffung an die Ubertragungsnetzbetreiber weitergereicht, die somit vor der Aufgabe der Implementierung eines geeigneten Verfahrens zur Beschaffung stehen. Das vorliegende Papier prasentiert einen okonomischen Erklarungsansatz fur diese kurzfristige und fundamentale Anderung. Unsere Analyse zeigt, dass die geplante Ubertragung des Ausschreibungsverfahrens der Kapazitatsreserve auf die neu zu errichtenden Anlagen der Netzreserve in der vorgesehenen Form nicht geeignet war. Die Bieter waren dadurch erheblichen Risiken ausgesetzt worden, insbesondere durch hohe Kosten- und Kalkulationsunsicherheiten, die auch negativ in Bezug auf die Erreichung der Ziele der Netzreserve zu beurteilen sind. Aufgrund dieser Kritikpunkte halten wir die Abkehr vom ursprunglichen Beschaffungsverfahren fur den richtigen Schritt, obwohl wir ein wettbewerbliches Verfahren fur prinzipiell vorteilhaft erachten, das jedoch – wie wir im Papier ausfuhren – den besonderen Anforderungen der Netzreserve Rechnung zu tragen hat. Diese Aufgabe bleibt auch nach der Kompetenzubertragung an die Ubertragungsnetzbetreiber bestehen.

This paper sheds light on the status quo of currently implemented electricity intraday auctions in Europe and offers an outlook for future developments. First, we compare the two market mechanisms “continuous trading” and “auction” and identify advantages and disadvantages. Then, we investigate the currently existing six intraday auctions in Europe. We compare crucial auction characteristics such as the number of auctions, tradable market period(s), gate opening time and gate closure time, and find a wide variety in auction designs. By examining relevant European regulation and recent regulatory decisions, we illustrate that future European intraday auctions can either be implemented as cross-border auctions or complementary regional auctions. We find that complementary regional auctions of the borders Portugal-Spain, CCR Greece-Italy and CCR Italy-North are already approved.

Wiley interdisciplinary reviews / Energy and Environment 7(6), e303 (2018). doi:10.1002/wene.303, Published by Wiley-Blackwell, Malden, MA

In this paper, seven European Frequency Restoration Reserve (FRR) auctions (positive and negative) are investigated both theoretically and empirically. First, the seven FRR market environments (i.e. supply sides and auction designs) are illustrated. Then, a theoretic analysis of the seven FRR auctions is presented. For this, we identify the underlying cost structures and develop the bidding calculus for each FRR auction. These analyses yield conditions for optimal bidding strategies, i.e. profit maximizing bids. We confront our theoretic findings with empirical auction results in the time span from 2014 to mid 2016. Here, we measure the performance of FRR auctions by the extent of which the submitted bids match theoretic predictions. The central result is that empirical auction data of five FRR auctions do not match theoretical predictions. Finally, we conclude implications for a harmonized European FRR auction design.

This paper presents an empirical study for 24 European countries that procure balancing power with auctions. We find that there is no predominant market design in Europe but qualitatively identify three key drivers for the variety in market designs: the share of volatile renewable energy sources, short-term flexibility and market coupling. The inconsistency of auction designs, however, cannot be traced back to the power market framework conditions. We argue that this is a consequence of the applied multi-part auction mechanism and offer a brief review of auction-theoretic literature.