Strategic Bidding to Increase the Market Value of Variable Renewable Generators in New Electricity Market Designs

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, Faculty of Sciences, University of Lisbon, Campo Grande, 1749-016 Lisbon, Portugal

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

Abstract: Electricity markets with a high share of variable renewable energy require significant balancing reserves to ensure stability by preserving the balance of supply and demand. However, they were originally conceived for dispatchable technologies, which operate with predictable and controllable generation. As a result, adapting market mechanisms to accommodate the characteristics of variable renewables is essential for enhancing grid reliability and efficiency. This work studies the strategic behavior of a wind power producer (WPP) in the Iberian electricity market (MIBEL) and the Portuguese balancing markets (BMs), where wind farms are economically responsible for deviations and do not have support schemes. In addition to exploring current market dynamics, the study proposes new market designs for the balancing markets, with separate procurement of upward and downward secondary balancing capacity, aligning with European Electricity Regulation guidelines. The difference between market designs considers that the wind farm can hourly bid in both (New 1) or only one (New 2) balancing direction. The study considers seven strategies (S1–S7) for the participation of a wind farm in the past (S1), actual (S2 and S3), New 1 (S4) and New 2 (S5–S7) market designs. The results demonstrate that new market designs can increase the wind market value by 2% compared to the optimal scenario and by 31% compared to the operational scenario. Among the tested approaches, New 2 delivers the best operational and economic outcomes. In S7, the wind farm achieves the lowest imbalance and curtailment while maintaining the same remuneration of S4. Additionally, the difference between the optimal and operational remuneration of the WPP under the New 2 design is only 22%, indicating that this design enables the WPP to achieve remuneration levels close to the optimal case.

Keywords: electricity market designs; price arbitrage; probabilistic forecasts; secondary and tertiary reserves; strategic bidding; variable renewable energy sources (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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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