Skip to main content

Absence of a market in the Dutch balancing mechanism: European rules versus specific investments


The European directives for the electricity industry prescribe the creation of a market for balancing electricity supply and demand. In this paper, we demonstrate that a market for balancing has not emerged in the Dutch electricity industry, and that, instead, the balancing transactions are governed by regulated, long-term contracts and a bidding mechanism. We explain the absence of a balancing market by using the framework of transaction cost economics, in which the efficiency of a market decreases with increasing investments in specific assets. The results of a questionnaire among the energy firms that supply balancing power in the Dutch setting show that these firms have invested in specific physical, temporal and dedicated balancing assets. The need for these specific investments to balance supply and demand does not only explain the absence of a market, but also the lack of participation by small firms in the balancing mechanism. We recommend several policies, such as stimulating technological developments for the storage of electricity and demand side management, which reduce these specific investments in balancing assets, and thereby stimulate the creation of a market and the participation of small firms.

This is a preview of subscription content, access via your institution.


  • ACM. (2006). Reactie Essent N.V. op NMa Consultatie Concentratie Energiemarkten. Accessed June 6, 2013, from

  • Andersson, S.-L., Elofsson, A. K., Galus, M. D., Goransson, L., Karlsson, S., Johnsson, F., et al. (2010). Plug-in hybrid electric vehicles as regulating power providers: Case studies of Sweden and Germany. Energy Policy, 38, 2751–2762.

    Article  Google Scholar 

  • Bathurst, G., & Strbac, G. (2003). Value of combining energy storage and wind in short-term energy and balancing markets. Electric Power Systems Research, 67, 1–8.

    Article  Google Scholar 

  • Baudisch, A. F. (2007). How demand specificity shapes transaction costs explaining the dynamics of the liberalizing British electricity sector, 19902005. Paper presented at the Druid Conference, Copenhagen, June 2007. Accessed July 18, 2012, from

  • Beune, R., & Nobel, F., (2001). System balancing in The Netherlands. Paper presented at Conference on methods to secure peak load capacity on deregulated electricity markets, Stockholm, June 2001. Accessed July 18, 2012, from

  • Bjuggren, P.-O., & Sund, L.-G. (2012). A contractual perspective on succession in family firms: a stakeholder view. European Journal of Law and Economics. doi:10.1007/s10657-012-9331-6.

  • DTe. (2000). Besluit van de directeur van de Dienst uitvoering en toezicht Energie op de bezwaren ingebracht tegen zijn besluit van 21 December 2000, nr. 00-124 tot wijziging van de voorwaarden als bedoeld in artikel 31, eerste lid, onder a en onder c van de Elektriciteitswet 1998, nr. 100264/6. Den Haag: DTe.

  • DTe & TenneT. (2004). Transparantie van onbalansprijssystematiek. Den Haag/Arnhem: DTe & TenneT.

    Google Scholar 

  • ECN. (2004). DISPOWER: A socio-economic analysis of technical solutions and practices for the integration of distributed generation. In International Conference on the Integration of Renewable Energy Sources and Distributed Energy Resources, Brussels, December 1–3, 2004.

  • Eising, R. (2002). Policy learning in embedded negotiations: Explaining EU electricity liberalization’. International Organization, 56, 85–120.

    Article  Google Scholar 

  • European Commission. (2003). Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC. Brussels: EC.

    Google Scholar 

  • European Commission. (2007). DG Competition report on Energy Sector Inquiry. Accessed July 18, 2012, from

  • European Commission. (2009). Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC. Brussels: EC.

    Google Scholar 

  • Friedrichsen, N. (2012). Governing smart grids: the case for an independent system operator. European Journal of Law and Economics, doi:10.1007/s10657-012-9345-0.

  • Glachant, J.-M., & Saguan, M. (2007). An institutional frame to compare alternative market designs in EU electricity balancing. Working Paper, University of Cambridge. Accessed July 18, 2012, from

  • Hortaçsu, A., & Puller, S. (2008). Understanding strategic bidding in multi-unit auctions: A case study of the Texas electricity spot market. The Rand Journal of Economics, 39, 86–114.

    Article  Google Scholar 

  • International Energy Agency. (2000). Energy Policy of IEA Countries—The Netherlands 2000 Review. Paris: IEA.

    Google Scholar 

  • Joskow, P. (1987). Contract duration and relationship-specific investments: Empirical evidence from coal markets. The American Economic Review, 77, 168–185.

    Google Scholar 

  • Joskow, P. (1996). Introducing competition into regulated network industries: From hierarchies to markets in electricity. Industrial and Corporate Change, 5, 341–382.

    Article  Google Scholar 

  • Kempton, W., & Tomic, J. (2005). Vehicle-to-grid power fundamentals: Calculating capacity and net revenue. Journal of Power Sources, 144, 268–279.

    Article  Google Scholar 

  • Künneke, R., Groenewegen, J., & Ménard, C. (2010). Aligning modes of organization with technology: Critical transactions in the reform of infrastructures. Journal of Economic Behavior & Organization, 75, 494–505.

    Article  Google Scholar 

  • Loughron, D., & Kulich, J. (2004). Demand-side management and energy efficiency in the United States. Energy Journal, 25, 19–43.

    Google Scholar 

  • Macher, J., & Richman, B. (2008). Transaction cost economics: An assessment of empirical research in the social sciences. Business and Politics, 10, 1–65.

    Article  Google Scholar 

  • Newbery, D. (2004). Electricity liberalisation in Britain: the quest for a satisfactory market design. CMI Working Paper 64, University of Cambridge. Accessed July 18, 2012, from

  • Niesten, E., & Jolink, A. (2012a). Incentives, opportunism and behavioral uncertainty in electricity industries. Journal of Business Research, 65, 1031–1039.

    Article  Google Scholar 

  • Niesten, E., & Jolink, A. (2012b). Regulating opportunism in the electricity industry and consumer interests. Utilities Policy, 20, 38–45.

    Article  Google Scholar 

  • Paulus, M., & Borggrefe, F. (2011). The potential of demand-side management in energy-intensive industries for electricity markets in Germany. Applied Energy, 88, 432–441.

    Article  Google Scholar 

  • Sioshansi, R., & Oren, S. (2007). How good are supply function equilibrium models: An empirical analysis of the ERCOT balancing market. Journal of Regulatory Economics, 31, 1–35.

    Article  Google Scholar 

  • Strbac, G. (2008). Demand-side management: Benefits and challenges. Energy Policy, 36, 4419–4426.

    Article  Google Scholar 

  • Strbac, G., & Black, M. (2004). Future value of storage in the UK. London: Department of Trade and Industry.

    Google Scholar 

  • TenneT. (2003). Handleiding bieden regel- en reservevermogen. Accessed July 18, 2012, from

  • TenneT. (2005). De onbalansprijssystematiek per 01-01-2001, herzien per 26-10-2005. Accessed July 18, 2012, from

  • TenneT. (2007). Uitvoeringsregels met betrekking tot Net-en Systeemcode. Accessed July 18, 2012, from

  • TenneT. (2011). Notitie Productinformatie Regelvermogen19 mei 2011. Accessed June 6, 2013, from

  • TenneT. (2012). Uitvoeringsregels met betrekking tot Net- en Systeemcodeversie januari 2012. Accessed June 6, 2013, from

  • Tomic, J., & Kempton, W. (2007). Using fleets of electric-drive vehicles for grid support. Journal of Power Sources, 168, 459–468.

    Article  Google Scholar 

  • Van der Veen, R., & De Vries, L. (2009). The impact of microgeneration upon the Dutch balancing market. Energy Policy, 37, 2788–2797.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Walawalkar, R., Apt, J., & Mancini, R. (2007). Economics of electric energy storage for energy arbitrage and regulation in New York. Energy Policy, 35, 2558–2568.

    Article  Google Scholar 

  • Williams, B., & Kurani, K. (2007). Commercializing light-duty plug-in/plug-out hydrogen fuel cell vehicles: Mobile electricity technologies and opportunities. Journal of Power Sources, 166, 549–566.

    Article  Google Scholar 

  • Williamson, O. (1985). The economic institutions of capitalism: Firms, markets, relational contracting. New York: Free Press.

    Google Scholar 

  • Williamson, O. (1991). Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36, 269–296.

    Article  Google Scholar 

  • Williamson, O. (1994). Visible and invisible governance. The American Economic Review, 84, 323–326.

    Google Scholar 

  • Williamson, O. (1996). The mechanisms of governance. Oxford: Oxford University Press.

    Google Scholar 

  • Williamson, O. (2000). The new institutional economics: Taking stock, looking ahead. Journal of Economic Literature, 38, 595–613.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations


Corresponding author

Correspondence to Eva Niesten.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Niesten, E., Jolink, A. Absence of a market in the Dutch balancing mechanism: European rules versus specific investments. Eur J Law Econ 38, 71–90 (2014).

Download citation

  • Published:

  • Issue Date:

  • DOI:


  • Balancing mechanism
  • Specific investments
  • Electricity market
  • European rules
  • Transaction cost economics

JEL Classification

  • D23
  • K23
  • L22
  • L94
  • Q48