New Economics Papers
on Market Microstructure
Issue of 2009‒10‒17
one paper chosen by
Thanos Verousis

  1. Lacking balancing market harmonisation in Europe: room for trader profits at the expense of economic efficiency? By Leen Vandezande; Leonardo Meeus; Ronnie Belmans; Marcelo Saguan; Jean-Michel Glachant; Vincent Rious

  1. By: Leen Vandezande (KUL - Katholieke Universiteit Leuven - Université Catholique de Louvain); Leonardo Meeus (KUL - Katholieke Universiteit Leuven - Université Catholique de Louvain); Ronnie Belmans (KUL - Katholieke Universiteit Leuven - Université Catholique de Louvain); Marcelo Saguan (ADIS - Analyse des Dynamiques Industrielles et Sociales - Université Paris Sud - Paris XI); Jean-Michel Glachant (LdP - Loyola de Palacio Programme - European University Institute); Vincent Rious (SUPELEC-Campus Gif - SUPELEC)
    Abstract: Following several regional initiatives on the day-ahead and intra-day stage, integrating real-time balancing markets constitutes a logical next step in the process towards an Internal Electricity Market (IEM) in Europe. So far, realtime balancing market designs significantly differ between European countries and a coordinated approach for cross-border exchange of balancing services is non-existent. This paper aims to illustrate that the current lack of balancing market harmonisation – in combination with an increasingly integrated day-ahead and intra-day trade – can be profitably exploited by traders. More specifically, trading strategies taking advantage of structural design differences in the imbalance settlement of two countries are identified and assessed. The paper analyses detailed data of the Belgian and French power system using statistics in order to verify the profitability of different trading strategies between both countries. Some of the identified trading strategies are found to be significantly profitable; others turn out to be loss-making. On average, France was the most attractive country for traders to be long in 2008; Belgium to be short. Profitable trading strategies can usally be carried out without any expense as cross-border capacities available at the intra-day stage are currently far from being used and no value is attributed to them. However, some profitable trading activities resulting from market design imperfections may induce economic inefficiencies
    Date: 2009–06–24

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