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Industrialized countries need a steady, reliable and efficient electricity supply and an
understanding of its mechanism. Modeling the electricity market as a forward market with
a single not storable good (see Allaz, 1992; Allaz and Vila, 1993; and Green and Newbery,
1992) is important to accomplish this. Such markets are typically analyzed with either
supply-function-equilibria (e.g., refer to Klemperer and Meyer, 1989; Green and Newbery,
1992; Green, 1996; Weber and Overbye, 1999; and Berry et al., 1999a), with Cournot-models
(e.g., Cardell et al., 1997; Hogan, 1997; Hobbs et al., 2000; and Boisseleau et al., 2004) or
Stackelberg models (e.g., Wolf and Smeers, 1997; and Chen et al., 2004). The former is a
better fit to the technical realization of many electricity markets where bids are given as
supply or cost functions. Introduction to energy market models can be found in Meibom
et al. (2003), Boisseleau et al. (2004), Yao et al. (2004) and Sanin (2005).
The German balancing market follows, like its spot market (EEX), day-ahead auctions.
In contrast to the spot market (designed as a uniform-priced double auction), the
balancing market is a day-ahead, multi-unit, multi-part, pay-as-bid procurement auction
(Swider and Weber, 2007). Each prequalified (see RWE, 2006) participant can place two
price offers—one for reserving capacity and the other for the case of its actual usage— which are then used by the Transmission System Operator (TSO) to balance the market.
Since the number of prequalified power generators, which provide the necessary energy
capacity (and required energy), is quite low—e.g., Swider and Weber (2000) report only five
such active participants in the zone of Vattenfall Europe in Germany—we concentrate on
those participants who are passively affected by the balancing market1. Appendix A.1
provides more details about the German balancing market and the difference we make
between active and passive players. |
