Economics and design of balancing power markets in Germany

This article analyzes the economic fundamentals that govern market design and behavior in German balancing power markets. Then, partly based on theoretical work by Chao and Wilson [3], we illustrate the role of the scoring and the settlement rule as key elements of the market design. With sufficiently competitive markets, a settlement rule based on uniform pricing ensures efficient energy call in the balancing power market. A scoring rule based on capacity prices only ensures an efficient production schedule. Thus, both rules together with rational bidding ensure simultaneous efficiency on the balancing power market and the wholesale electricity market.