Balancing power and variable renewables: Three links

Balancing power is used to quickly restore the supply-demand balance in power systems. The need for this tends to be increased by the use of variable renewable energy sources (VRE) such as wind and solar power. This paper reviews three channels through which VRE and balancing systems interact: the impact of VRE forecast errors on balancing reserve requirements; the supply of balancing services by VRE generators; and the incentives to improve forecasting provided by imbalance charges. The paper reviews the literature, provides stylized facts from German market data, and suggests policy options. Surprisingly, while German wind and solar capacity has tripled since 2008, balancing reserves have been reduced by 15%, and costs by 50%.