Design and performance of European balancing power auctions

Abstract

In this paper, seven European Frequency Restoration Reserve (FRR) auctions (positive and negative) are investigated both theoretically and empirically. First, the seven FRR market environments (i.e. supply sides and auction designs) are illustrated. Then, a theoretic analysis of the seven FRR auctions is presented. For this, we identify the underlying cost structures and develop the bidding calculus for each FRR auction. These analyses yield conditions for optimal bidding strategies, i.e. profit maximizing bids. We confront our theoretic findings with empirical auction results in the time span from 2014 to mid 2016. Here, we measure the performance of FRR auctions by the extent of which the submitted bids match theoretic predictions. The central result is that empirical auction data of five FRR auctions do not match theoretical predictions. Finally, we conclude implications for a harmonized European FRR auction design.