A new market has been rolled out in Germany on July 1st (summary in this article), which is one of the few that deals exclusively with reserve capacity. In particular, it is about what I call virtual supply: consumption that can be turned off, which has the same effect as turning on some generator. Actors can take part if they offer at least 50 MW of consumption that can be shut down by the system operator (either within seconds or within 15 minutes) and are directly connected to the transmission grid. They can place bids for what they would like to be paid for this service (for offering this ability) in a monthly auction. They'll also get some money for each time this service is actually used.

It is still under discussion how much we need capacity markets. Some people argue that paying generators for sheer existence is the only way that fast-reacting gas power plants will return their investments at all these days. I'm not too sure that this mechanism would turn out any cheaper than what happened with the rather static (and thus expensive) close-to-life-time subsidies for installations in the renewable sector. Maybe they'd make it work better, but it's not easy.

However, I'm glad that before we decide about how to finance new generation facilities, this low-hanging fruit is already being plugged: There is lots of capabilities in industry to shut off demand flexibly, and it is time to find out their economic value - and to hold auctions for this flexibility more often than we have done previously.

In general, I am not sure if this is the best market mechanism (in terms of economic efficiency as well as usability). The information in the article is sparse (here are more details about the bid structure, in German), but for instance, they have to make decisions about two prices: The one for availability (being there) and the one for actually providing flexibility (getting turned off). I had my own thoughts about simplifying this model. We can also not be sure if this system can be gamed or not.

However, the market operators say they want to "learn" with these kinds of settings before we really depend on them. All good luck to them! The market already reacts and the first consultants already offer support for bidding in this system.

02 Jul 2013 - 12:31
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