Interaction of market-power exercise between day-ahead and reserve markets

Laureen Deman () and Afzal Siddiqui
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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
Afzal Siddiqui: Department of Computer and Systems Sciences - Stockholm University

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Abstract: Disequilibrium in electricity markets can have large costs for the society. As a result, reserves markets are organised to ensure that demand and supply are always balanced in real time. However, these markets are concentrated such that market power can alter their efficiency. This paper investigates strategic behaviours in reserves markets by analysing the interactions between forward and real-time markets for electricity and reserves. To do so, we extend the modelling frameworks of strategic behaviour in forward electricity markets and of short-term system reliability supply. The public good nature of reserves is represented through a fixed demand for reserves in the forward market. Despite this characteristic, the results show that the reserves market is used strategically through the exercise of market power in the electricity markets. Independently from the realisation of reserves activation, strategic behaviours are observed with either a limitation of reserves activation or an increase of capacity withholding in the electricity markets. The results suggest that despite a sufficient level of reserves procured in the forward market, their efficiency to handle grid contingencies in real time is altered by strategic behaviours.

Keywords: Reserves markets; Market power; Cournot competition; Forward markets; Renewable energy (search for similar items in EconPapers)
Date: 2026-04-15
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Published in Working paper days, Laboratoire Génie industriel, Sustainable Economics research group; Chaire Energy Markets and Sustainable Industries (CEMSI), Apr 2026, Gif-sur-Yette, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05597821

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