Advertisement

Journal of Regulatory Economics

, Volume 48, Issue 2, pp 218–243 | Cite as

Strategic behavior in the German balancing energy mechanism: incentives, evidence, costs and solutions

  • Sebastian Just
  • Christoph Weber
Original Article

Abstract

This paper investigates the incentives market participants have in the German electricity balancing mechanism. Strategic over and undersupply positions are the result of existing stochastic arbitrage opportunities between the spot market and the balancing mechanism. Clear indications for strategic behavior can be observed in aggregate market data. These structural imbalances increase the need for reserve capacity, raise system security concerns, and therefore place significant costs on consumers. The underlying problem is the disconnect between spot market, reserve capacity market and balancing mechanism. Alternative market design options discussed in this paper suggest better alignment between these markets/mechanisms.

Keywords

Electricity market design Balancing mechanism Reserve capacity Strategic behavior 

JEL Classification

L94 Q41 Q47 

Notes

Acknowledgments

The authors would like to thank the editor and the anonymous referees for helpful comments on earlier drafts of the paper.

References

  1. 50Hertz. (2012). Balancing price and imbalance data. http://www.50hertz-transmission.net.
  2. Amprion. (2012a). Balancing price and imbalance data. http://www.amprion.net.
  3. Amprion. (2012b). Information about balancing group contracts on the company webpage. http://www.amprion.net/en/balancing-group-management.
  4. BMWi. (2012). German energy data-data collection by the German Federal Ministry for Economic Affairs and Energy. http://www.bmwi.de.
  5. BNetzA. (2010). Ruling on grid control cooperation for German grid. B6–08-111 (in German) by the German Regulatory Authority. http://www.bundesnetzagentur.de.
  6. BNetzA. (2012a). Report on energy supplies in winter 2011/2012 (in German), by the German Regulatory Authority. http://www.bundesnetzagentur.de.
  7. BNetzA. (2012b). Ruling on enhancements in the German balancing mechanism. B6–12-024 (in German) by the German Regulatory Authority. http://www.bundesnetzagentur.de.
  8. Boogert, A., & Dupont, D. (2005). On the effectiveness of the anti-gaming policy between the day-ahead and the real-time electricity market in The Netherlands. Energy Economics, 27, 752–770.CrossRefGoogle Scholar
  9. Brueckl, O. (2006). Probabilistic determination of the reserve capacity requirements in the electricity system (in German). Ph.D. dissertation, Technical University of Munich.Google Scholar
  10. Bushnell, J. B., & Oren, S. S. (1994). Bidder cost revelation in electric power auctions. Journal of Regulatory Economics, 6, 5–26.CrossRefGoogle Scholar
  11. Chao, H., & Wilson, R. (2002). Multi-dimensional procurement auctions for power reserves: Robust incentive-compatible scoring and settlement rules. Journal of Regulatory Economics, 22, 161–183.CrossRefGoogle Scholar
  12. Consentec. (2008). Expert opinion of the required amount of system reserve capacity. Report for the German Federal Regulatory Autherity. http://www.bundesnetzagentur.de.
  13. EEX. (2012). Market data on day-ahead and intraday spot prices. http://www.eex.de.
  14. ELCON. (2004). The economic impacts of the August 2003 blackout. Electric consumer research council. http://www.elcon.org/Documents/EconomicImpactsOfAugust2003Blackout.pdf.
  15. Energate. (2012). Suspicion: Traders have compromised the electricity grid (in German). Energate Netze monthly report.Google Scholar
  16. ERGEG. (2006). Guidelines of good practice for electricity balancing markets integration by the European Regulators group for electricity and gas. Accessed December 06, 2006, from http://www.energy-regulators.eu.
  17. FAZ. (2012). Escaping barely the collapse (in German). Frankfurter Allgemeine Zeitung. Accessed February 16, 2012, from www.faz.net/aktuell/wirtschaft/stromversorgung-dem-kollaps-knapp-entgangen-11651935.html.
  18. Growitsch, C., Weber, C. (2008). On the electricity reserves market redesign in Germany. CNI-Working Paper, Technical University Berlin.Google Scholar
  19. Hodge, B.-M., Lew, D., Milligan, M. (2013). Short-term Load forecasting error distributions and implications for renewable integration studies. In Proceedings of IEEE green technologies conference, Denver.Google Scholar
  20. Hufendiek, K. (2001). Systematic Development of Load Forecasting Systems based on Neural Networks (in German). Ph.D. dissertation, University of Stuttgart.Google Scholar
  21. Just, S. (2011). Appropriate contract durations in the German markets for on-line reserve capacity. Journal of Regulatory Economics, 39, 194–220.CrossRefGoogle Scholar
  22. Just, S., & Weber, C. (2008). Pricing of reserves: Valuing system reserve capacity against spot prices in electricity markets. Energy Economics, 30, 3198–3221.CrossRefGoogle Scholar
  23. Moeller, C., Rachev, S. T., & Fabozzi, F. J. (2011). Balancing energy strategies in electricity portfolio management. Energy Economics, 33, 2–11.CrossRefGoogle Scholar
  24. Rammerstorfer, M., & Müller, G. (2008). A theoretical analysis of procurement auctions for minutes reserve control in Germany. Energy Policy, 36(7), 2620–2627.CrossRefGoogle Scholar
  25. Rammerstorfer, M., & Wagner, C. (2009). Reforming minute reserve policy in Germany: A step towards efficient markets? Energy Policy, 37(9), 3513–3519.CrossRefGoogle Scholar
  26. Regelleistung (2012). Results from reserve capacity auctions of the German TSOs. http://www.regelleistung.net.
  27. Schummer, J., & Vohra, R. V. (2003). Auctions for procuring options. Operations Research, 51, 41–51.CrossRefGoogle Scholar
  28. Stoft, S. (2002). Power system economics—Designing markets of electricity. Piscataway, NJ: Wiley Press.Google Scholar
  29. Swider, D. J. (2007a). Competition in the German market for power systems reserve? (in German). Energiewirtschaftliche Tagesfragen, 57(9), 32–37.Google Scholar
  30. Swider, D. J. (2007b). Efficient scoring-rule in multi-part procurement auctions for power system reserve. IEEE Transactions on Power Systems, 22, 1717–1725.CrossRefGoogle Scholar
  31. Swider, D. J., & Ellersdorfer, I. (2005). Cost efficiency in the German market for power systems reserve (in German). Energiewirtschaftliche Tagesfragen, 55, 802–806.Google Scholar
  32. Swider, D. J., & Weber, C. (2003). Design of German Markets for power systems reserve (in German). Energiewirtschaftliche Tagesfragen, 53, 448–453.Google Scholar
  33. TennetTSO. (2012). Balancing price and imbalance data. http://www.tennettso.de.
  34. TransnetBW. (2012). Balancing price and imbalance data. http://www.transnetbw.de.
  35. Vandezande, L., Meeus, L., Belmans, R., Saguan, M., & Glachant, J.-M. (2010). Well-functioning balancing markets: A prerequisite for wind power integration. Energy Policy, 38, 3146–3154.CrossRefGoogle Scholar
  36. Wawer, T. (2007). Incentives for gaming the German real time electricity pricing mechanism. In Proceeding of the 30th IAEE international conference, Wellington.Google Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Chair of Management Sciences and Energy EconomicsUniversity of Duisburg-EssenEssenGermany

Personalised recommendations