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Prevention of strategic behaviour in local flexibility markets using market monitoring – Concept, application example and limitations

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  • Jahns, Christopher
  • Stein, Tobias
  • Höckner, Jonas
  • Weber, Christoph

Abstract

Market-based congestion management has been proposed as a more efficient means of coping with congestion issues in zonal market designs. However, strategic behaviour has been identified as a fundamental problem of market-based approaches. This paper focuses on strategic behaviour in the setting of a local flexibility market. In this type of market, trading occurs in parallel with the intraday market and flexibility is verified by reporting baselines through a verification platform. Under these conditions, market monitoring based on statistical tests is presented as a countermeasure. By implementing tests that are robust against autocorrelation and based on the illustrative example, it is shown that the identification of strategic behaviour is possible. In combination with appropriate regulatory sanctioning, strategic behaviour can become less attractive and, in the best case, be prevented leading to a reduction in congestion management costs. The simplified example presented in this paper can serve as a basis for more complex use cases where additional factors need to be considered.

Suggested Citation

  • Jahns, Christopher & Stein, Tobias & Höckner, Jonas & Weber, Christoph, 2023. "Prevention of strategic behaviour in local flexibility markets using market monitoring – Concept, application example and limitations," Energy Policy, Elsevier, vol. 174(C).
    • Handle: RePEc:eee:enepol:v:174:y:2023:i:c:s0301421523000125
    DOI: 10.1016/j.enpol.2023.113427
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    Cited by:

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    2. Holmberg, Pär, 2024. "The Inc-Dec Game and How to Mitigate It," Working Paper Series 1512, Research Institute of Industrial Economics.

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    More about this item

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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