Impact of sophisticated orders on spot power prices

Abstract

In this paper, we analyse the impact of the introduction of more sophisticated types of bids on the wholesale day ahead market for electricity. The Belgian market is taken as a case study with available data used for the period 2007-2010. Sophisticated orders allow physical assets to be allocated in the most efficient way, even if prices deviate significantly from expectations. In this paper we analyse the quantitative impact on spot prices, both in terms of level and variability, if smart bids had been introduced. The main focus lies on tailor made sophisticated orders for pumped storage. The analyses are based on market resiliency data of Belpex, the Belgian Power exchange, and real historical data on available pumped storage plants. The findings could tip the balance to deepening the market coupling along with the widening to other geographical areas. Our results indicate that straight-forward solutions can improve the optimal allocation of scarce resources in the day ahead electricity market.