Decarbonizing the power mix will require investments in storage and flexibility options to replace the current carbon-intensive supply of reserves. This paper questions whether reserve-capacity markets can serve as a capacity mechanism for flexible technologies. A fundamental model of the day-ahead and reserve markets is used to investigate the evolution of reserve prices with large shares of renewable energy and storage. The model represents the current market design in Continental Europe with a centralized supply and platforms for the exchange of reserves. By becoming the main suppliers of reserve capacity, batteries have a noticeable impact on reserve prices. Their flexibility implies zero opportunity cost most of the time, meaning that the flexibility is not rewarded by the market. These results suggest that reserve-capacity markets cannot provide additional remuneration for flexible technologies and, thus, do not solve the missing-money problem in the context of the energy transition.
ACER and CEER. 2015. Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014. Luxembourg: Publications Office of the European Union.
2.
BackerM.KraftE.KelesD.2022. “On the Economic Impacts of European Balancing Market Integration: The Case of the Newly-Installed aFRR Market Coupling Platform.”SSRN. doi:10.2139/ssrn.4153203.
3.
CuaresmaJ. C.HlouskovaJ.KossmeierS.ObersteinerM.2004. “Forecasting Electricity Spot-Prices Using Linear Univariate Time-Series Models.”Applied Energy77(1): 87–106. doi:10.1016/S0306-2619(03)00096-5.
4.
DallingerB.AuerH.LettnerG.2018. “Impact of Harmonised Common Balancing Capacity Procurement in Selected Central European Electricity Balancing Markets.”Applied Energy222: 351–68. doi:10.1016/j.apenergy.2018.03.120.
5.
DemanL.BoucherQ.2023. “Impact of Renewable Energy Generation on Power Reserve Energy Demand.”Energy Economics128: 107173. doi:10.1016/j.eneco.2023.107173.
6.
DoL. P. C.LyócsaŠ.MolnárP.2021. “Residual Electricity Demand: An Empirical Investigation.”Applied Energy283: 116298. doi:10.1016/j.apenergy.2020.116298.
7.
DomínguezR.OggioniG.SmeersY.2019. “Reserve Procurement and Flexibility Services in Power Systems with High Renewable Capacity: Effects of Integration on Different Market Designs.”International Journal of Electrical Power & Energy Systems113: 1014–34. doi:10.1016/j.ijepes.2019.05.064.
8.
ENTSO-E. 2018. “All TSOs’ Proposal for the Implementation Framework for the Exchange of Balancing Energy from Frequency Restoration Reserves with Automatic Activation in Accordance with Article 21 of Commission Regulation (EU) 2017/2195 Establishing a Guideline on Electricity Balancing.”https://consultations.entsoe.eu/markets/afrr_implementation_framework/.
European Commission. 2017a. “Commission Regulation (EU) 2017/1485 of 2 August 2017 Establishing a Guideline on Electricity Transmission System Operation.”http://data.europa.eu/eli/reg/2017/1485/oj.
11.
European Commission. 2017b. “Commission Regulation (EU) 2017/2195 of 23 November 2017 Establishing a Guideline on Electricity Balancing. 2017-11-28.”https://eur-lex.europa.eu/eli/reg/2017/2195/oj/en
12.
FarahmandH.DoormanG. L.2012. “Balancing Market Integration in the Northern European Continent.”Applied Energy96: 316–26. doi:10.1016/j.apenergy.2011.11.041.
13.
GebrekirosY.DoormanG.JaehnertS.FarahmandH.2015. “Reserve Procurement and Transmission Capacity Reservation in the Northern European Power Market.”International Journal of Electrical Power & Energy Systems67: 546–59. doi:10.1016/j.ijepes.2014.12.042.
14.
GormanW.2022. “The Quest to Quantify the Value of Lost Load: A Critical Review of the Economics of Power Outages.”The Electricity Journal35(8): 107187. doi:10.1016/j.tej.2022.107187.
15.
HåbergM.DoormanG.2016. “Classification of Balancing Markets Based on Different Activation Philosophies: Proactive and Reactive Designs.”13th International Conference on the European Energy Market (EEM), Porto, Portugal, 1–5. IEEE. doi:10.1109/EEM.2016.7521272.
16.
HirthL.ZiegenhagenI.2015. “Balancing Power and Variable Renewables: Three Links.”Renewable and Sustainable Energy Reviews50: 1035–51. doi:10.1016/j.rser.2015.04.180.
JaehnertS.DoormanG. L.2012. “Assessing the Benefits of Regulating Power Market Integration in Northern Europe.”International Journal of Electrical Power & Energy Systems43(1): 70–79. doi:10.1016/j.ijepes.2012.05.010.
19.
KettererJ. C.2014. “The Impact of Wind Power Generation on the Electricity Price in Germany.”Energy Economics44: 270–80. doi:10.1016/j.eneco.2014.04.003.
20.
KomorowskaA.OlczakP.2024. “Economic Viability of Li-ion Batteries Based on the Price Arbitrage in the European Day-Ahead Markets.”Energy290: 130009. doi:10.1016/j.energy.2023.130009.
MaysJ.2021. “Missing Incentives for Flexibility in Wholesale Electricity Markets.”Energy Policy149: 112010. doi:10.1016/j.enpol.2020.112010.
24.
MüsgensF.OckenfelsA.PeekM.2014. “Economics and Design of Balancing Power Markets in Germany.”International Journal of Electrical Power & Energy Systems55: 392–401. doi:10.1016/j.ijepes.2013.09.020.
25.
PapaefthymiouG.DragoonK.2016. “Towards 100% Renewable Energy Systems: Uncapping Power System Flexibility.”Energy Policy92: 69–82. doi:10.1016/j.enpol.2016.01.025.
26.
PapavasiliouA.SmeersY.2017. “Remuneration of Flexibility Using Operating Reserve Demand Curves: A Case Study of Belgium.”The Energy Journal38(6): 105–135. doi:10.5547/01956574.38.6.apap.
27.
PoplavskayaK.LagoJ.De VriesL.2020. “Effect of Market Design on Strategic Bidding Behavior: Model-Based Analysis of European Electricity Balancing Markets.”Applied Energy270: 115130. doi:10.1016/j.apenergy.2020.115130.
28.
ProlJ. L.SteiningerK. W.ZilbermanD.2020. “The Cannibalization Effect of Wind and Solar in the California Wholesale Electricity Market.”Energy Economics85: 104552. doi:10.1016/j.eneco.2019.104552.
Van den BerghK.BruninxK.DelarueE.2018. “Cross-Border Reserve Markets: Network Constraints in Cross-Border Reserve Procurement.”Energy Policy113: 193–205. doi:10.1016/j.enpol.2017.10.053.
31.
Van den BerghK.DelarueE.2020. “Energy and Reserve Markets: Interdependency in Electricity Systems with a High Share of Renewables.”Electric Power Systems Research189: 106537. doi:10.1016/j.epsr.2020.106537.
32.
WolfgangO.HaugstadA.MoB.GjelsvikA.WangensteenI.DoormanG.2009. “Hydro Reservoir Handling in Norway before and after Deregulation.”Energy34(10): 1642–51. doi:10.1016/j.energy.2009.07.025.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
