A more efficient procurement mechanism for reserver capacity in the German market for balancing power

Kai Flinkerbusch

No 52, CAWM Discussion Papers from University of Münster, Münster Center for Economic Policy (MEP)

Abstract: From auction theory we know that multi-unit, pay-as-bid auctions in general lead to bid shading and thus to an inefficient allocation. This result is supported by historical data from the German market for balancing power, which show that bidders bid well above their actual costs. In contrast to the pay-as-bid auction, the Vickrey auction has the dominant strategy property and bidders reveal their true opportunity cost. Consequently, the Vickrey auction allocates efficiently. In this article we show how this auction format can facilitate an efficient capacity procurement process in the German reserve market.

Keywords: Electricity market; balancing power; uniform-price auction; pay-as-bid auction (search for similar items in EconPapers)
JEL-codes: D44 L11 N74 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ene
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cawmdp:52

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