An analysis of design options for markets for cross-border balancing of electricity

•A comprehensive framework for the analysis of cross-border balancing is developed.•Reservation of reserve capacity and activation of balancing energy are addressed.•Design variables are defined to characterize six fundamental market designs.•Imbalance netting, i.e. cancelling out imbalances between areas, increases welfare.•Designs with direct cooperation between the involved TSOs are recommended.

A set of design variables is used to define balancing market design. Performance criteria are defined and the market designs are evaluated using weights and scores for each performance criterion. It is concluded that solutions based on trading between Balancing Service Providers and Transmission System Operators will reduce socio-economic welfare. Major causes for this result are a reduction of the effectiveness of the balancing markets, a reduction in balancing planning accuracy, a reduction in price efficiency and a decrease in dynamic efficiency. The designs with a Common Merit Order List perform well in the evaluation, although reservation of cross-border capacity will be a challenge.