Design and regulation of balancing power auctions: an integrated market model approach

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