Short-Term Electricity Trading for System Balancing - An Empirical Analysis of the Role of Intraday Trading in Balancing Germany’s Electricity System

Abstract

Previous studies have noted that, surprisingly, Germany’s dramatic expansion of wind and solar energy coincided with a reduction of short-term balancing reserves. This paper provides further and updated evidence, supporting this “German Balancing Paradox”: since 2011 wind and solar energy nearly doubled while reserve requirements and reserve activation declined by around 50%. We quantitatively explore one reason for reduced balancing needs: increased and improved short-term wholesale electricity trading. Electricity trading is now commonly done around the clock and based on quarter hours, rather than hours. The shift to quarter-hourly products alone explains a decrease in balancing energy by 17%. We also find strong evidence for market parties to respond efficiently to imbalance charges, suggesting that market-based approaches to balancing work.