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Incentive Compatible Imbalance Settlement

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Incentive Compatible Imbalance Settlement


Imbalance settlement markets are managed by the system operators and give a mechanism for settling the inevitable discrepancies between contractual agreements and physical delivery. In European power markets, settlements schemes are mainly based mostly on heuristic penalties. These arrangements have disadvantages: 1st, they are doing not provide transparency concerning the cost of the reserve capability that the system operator may have obtained ahead of time, nor about the cost of the balancing energy that's truly deployed. Second, they can be gamed if market participants use the imbalance settlement as an opportunity for market arbitrage, for example if market participants use balancing energy to avoid higher costs through regular trade on illiquid energy markets. Third, current observe hinders the market-based integration of renewable energy and the provision of economic incentives for demand response through rigid penalty rules. In this paper we try to remedy these disadvantages by proposing an imbalance settlement procedure with an incentive compatible value allocation scheme for reserve capacity and deployed energy. Incentive compatible suggests that that market participants voluntarily and in truth state their valuation of ancillary services. We have a tendency to show that this approach guarantees revenue sufficiency for the system operator and provides financial incentives for balance accountable parties to stay imbalances close to zero.

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Incentive Compatible Imbalance Settlement - 4.5 out of 5 based on 2 votes

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