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Day-ahead and Reserve Prices in a Renewable-based Power System: Adapting Electricity-market Design for Energy Storage

Author

Listed:
  • Laureen Deman

    (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, SuperGrid Institute SAS)

  • Afzal Siddiqui

    (Department of Computer and Systems Science [Stockholm] - Stockholm University - KTH - KTH Royal Institute of Technology [Stockholm], Department of Mathematics and Systems Analysis [Aalto] - Aalto University)

  • Cédric Clastres

    (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)

  • Quentin Boucher

    (SuperGrid Institute SAS)

Abstract

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. JEL Classification: Q41, Q47

Suggested Citation

  • Laureen Deman & Afzal Siddiqui & Cédric Clastres & Quentin Boucher, 2025. "Day-ahead and Reserve Prices in a Renewable-based Power System: Adapting Electricity-market Design for Energy Storage," Post-Print hal-04931362, HAL.
    • Handle: RePEc:hal:journl:hal-04931362
    DOI: 10.1177/01956574241309557
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    More about this item

    Keywords

    Renewable energy; Reserve markets; Storage; Carbon-neutrality scenarios;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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