The electricity balancing market: Exploring the design challenge

In the unbundled national electricity markets in Europe, the balancing market is the institutional arrangement that deals with the balancing of electricity demand and supply. This paper presents a framework for policy makers that identifies the relevant design variables and performance criteria that play a role in the design and analysis of European balancing markets. We outline the full extent of the design challenge through a discussion of trade-offs among performance criteria, uncertain effects of design variables, and the many inter-linkages between the balancing market and the electricity market at large. Policy makers can address the balancing market design challenge by adopting a structured approach in which design variables, performance criteria, market conditions, system developments, and resultant market incentives are explicitly considered.