Strategies to Incentivize the Participation of Variable Renewable Energy Generators in Balancing Markets

Hugo Algarvio () and Vivian Sousa
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Hugo Algarvio: LNEG—National Laboratory of Energy and Geology, 1649-038 Lisbon, Portugal
Vivian Sousa: Department of Geographic Engineering, Geophysics and Energy, Science Faculty, The University of Lisbon (FCUL), 1749-016 Lisbon, Portugal

Energies, 2025, vol. 18, issue 11, 1-23

Abstract: Balancing markets (BMs) play a crucial role in ensuring the real-time equilibrium between electricity demand and supply. The current requirements for participation in BMs often overlook the characteristics and capabilities of variable renewables, limiting their effective integration. The increasing penetration of variable renewables necessitates adjustments in the design of BMs to support the transition toward carbon-neutral power systems. This study examines the levels of active market participation for a wind power producer (WPP) in the Iberian Electricity Market and the Portuguese BMs. In addition to exploring current market dynamics, the study tests one methodology proposed by the Danish Transmission System Operator to support the participation of variable renewables in BMs, the P90, and two new methods based on the full cost balancing concept. These methodologies incentivize WPPs to minimize imbalances by allowing market participation only if imbalances remain within a 10% deadband of annual hours (P90), hourly offers (D90), or both (DP90). The results indicate that participating in the secondary capacity market, particularly for downward capacity, is the most profitable strategy. This participation enhances the value of wind power by over 42%. However, in most methodologies, the WPP failed to deliver nearly 100% of its allocated capacity approximately 1% of the time. In contrast, the D90 approach limited the maximum deviation to 10%, demonstrating the highest reliability among the evaluated methods.

Keywords: balancing markets; balancing reliability requirements; full cost balancing; secondary reserve; variable renewables; wind power (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2025
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