Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287065 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Regulatory Economics [ISSN:] 1573-0468 [Volume:] 60 [Issue:] 1 [Publisher:] Springer US [Place:] New York, NY [Year:] 2021 [Pages:] 55-73
Publisher: 
Springer US, New York, NY
Abstract: 
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).
Subjects: 
Balancing power
Market design and interdependence
Scoring rule
Settlement rule
JEL: 
D2
D4
D5
D6
L1
L5
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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