Day-ahead and Reserve Prices in a Renewable-based Power System: Adapting Electricity-market Design for Energy Storage

Laureen Deman (), Afzal Siddiqui, Cédric Clastres and Quentin Boucher
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Laureen Deman: GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, SuperGrid Institute SAS
Afzal Siddiqui: Department of Computer and Systems Science [Stockholm] - Stockholm University - KTH - KTH Royal Institute of Technology [Stockholm], Department of Mathematics and Systems Analysis [Aalto] - Aalto University
Cédric Clastres: GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes
Quentin Boucher: SuperGrid Institute SAS

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Abstract: Decarbonizing the power mix will require investments in storage and flexibility options to replace the current carbon-intensive supply of reserves. This paper questions whether reserve-capacity markets can serve as a capacity mechanism for flexible technologies. A fundamental model of the day-ahead and reserve markets is used to investigate the evolution of reserve prices with large shares of renewable energy and storage. The model represents the current market design in Continental Europe with a centralized supply and platforms for the exchange of reserves. By becoming the main suppliers of reserve capacity, batteries have a noticeable impact on reserve prices. Their flexibility implies zero opportunity cost most of the time, meaning that the flexibility is not rewarded by the market. These results suggest that reserve-capacity markets cannot provide additional remuneration for flexible technologies and, thus, do not solve the missing-money problem in the context of the energy transition. JEL Classification: Q41, Q47

Keywords: Renewable energy; Reserve markets; Storage; Carbon-neutrality scenarios (search for similar items in EconPapers)
Date: 2025-02-05
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Published in Energy Journal, 2025, 46 (2), pp.67-98. ⟨10.1177/01956574241309557⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04931362

DOI: 10.1177/01956574241309557

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