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Market Equilibria in Cross-Border Balancing Platforms

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  • Cartuyvels, Jacques

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

  • Bertrand, Gilles
  • Papavasiliou, Anthony

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

The next phase of electricity markets integration in Europe will see the introduction of pan-European balancing platforms, MARI and PICASSO, for the trading of manual and automatic frequency restoration reserve. This paper provides an analytical framework for the study of pricing asymmetries between European member states in this context. The pricing asymmetries are due to balancing incentive components and consist of the unilateral introduction by a member state of either (i) an adder on the imbalance price and balancing price, (ii) an adder on the imbalance price solely, or (iii) the introduction of a real-time price for the trading of real-time balancing capacity. Our analytical framework allows us to characterize the optimal bidding strategy of flexible assets under the different designs and to derive the resulting equilibria. Our analysis demonstrates that adders without the trading of balancing capacity create inefficiencies by distorting the merit order and tend to be detrimental to the member state that introduces it.

Suggested Citation

  • Cartuyvels, Jacques & Bertrand, Gilles & Papavasiliou, Anthony, 2023. "Market Equilibria in Cross-Border Balancing Platforms," LIDAM Discussion Papers CORE 2023009, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2023009
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    References listed on IDEAS

    as
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    Keywords

    Balancing market ; cross-border balancing ; frequency restoration reserve ; real-time market for reserve;
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