Economics at your fingertips  

Pricing of reserves: Valuing system reserve capacity against spot prices in electricity markets

Sebastian Just and Christoph Weber

Energy Economics, 2008, vol. 30, issue 6, 3198-3221

Abstract: This paper models the interdependencies between markets for secondary reserve capacity and spot electricity to derive the pricing of reserves under equilibrium conditions. Starting with the indifference condition between offering in both markets, the reservation price is derived from the opportunity cost consideration and the unit commitment conditions in a fundamental interrelated market framework. The reserve market examined compares widely to the German market for secondary reserves, but the general approach may also be used to investigate other reserve markets. The approach explores and formalizes the influence of reserve capacity on the spot market supply function. A numerical solution procedure is provided to this non-trivial case of market interaction. The model is used to estimate the expected reservation price development over the last years in Germany.

Keywords: Electricity; markets; Ancillary; service; Secondary; reserve; Spinning; reserve; Opportunity; costs; Equilibrium; model (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-04-09
Handle: RePEc:eee:eneeco:v:30:y:2008:i:6:p:3198-3221