Contract durations in the electricity market: Causal impact of 15 min trading on the EPEX SPOT market

Abstract

The European Power Exchange (EPEX) introduced two new products in 2011 and 2014 which reduce the delivery duration of electricity from 1h to 15min intervals. These changes to the market design aim to better reflect the intermittent power generation from renewable energy sources. However, little is known about trading in shorter intervals and its impact on the existing market. As a remedy, our evaluation first shows that the market has quickly adopted the new 15min contracts. Second, we estimate a Bayesian structural time series, which measures a causal decrease of electricity prices. Depending on the model specification, our results indicate that the reduction can be as high as 28% for existing hourly contracts subsequent to the introduction of 15min trading. Third, the use of 15min contracts coincides with intermittent power generation, as it incentivizes renewable energy providers to offer additional electricity. Altogether, our findings suggest that 15min trading is used to balance the intra-hour volatility of renewable energy sources. Consequently, this presents a blueprint for policy-makers, who can attain similar price reductions and larger feed-ins from renewable energy sources without direct costs in all countries with high shares of renewable energy sources.