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

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

Energies, 2025, vol. 18, issue 7, 1-22

Abstract: The 2050 global ambition for a carbon-neutral society is increasing the penetration of the most competitive variable renewable technologies, onshore wind and solar PV. These technologies are known for their near-zero marginal costs but highly variable time-dependent generation. Power systems with major penetrations of variable generation need high balancing flexibility to guarantee their stability by maintaining the equilibrium between demand and supply. Electricity markets were designed for dispatchable technologies. Support schemes are used to incentivize and de-risk the investment in variable renewables, since actual market designs are riskier for their active participation. This study presents three strategic bidding strategies for the active participation of variable renewables in electricity markets based on probabilistic quantile-based forecasts. This case study examines the levels of active market participation for a wind power producer (WPP) in the Iberian electricity market and the Portuguese balancing markets, where WPPs are financially responsible for imbalances and operate without support schemes in the first and second stages of the Iberian market designs. Results from this study indicate that the WPP has the potential to increase its market value between 36% and 155% if participating in the tertiary and secondary balancing markets completely adapted to its design, respectively. However, considering the use of strategic bidding in actual market designs, by participating in the secondary reserve, the WPP can increase its market value by 10% and 45% when compared with perfect foresight and operational cases, respectively.

Keywords: balancing markets; electricity markets; imbalance settlement; market design; 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
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