Economic Interactions Between Electricity Reserve Markets and Wholesale Electricity Markets

This paper analyzes the interdependence of reserve and spot markets for electricity applying equilibrium models. We develop a Cournot model to analyze the impact of different pricing mechanisms at the reserve market (uniform and pay-as-bid) on spot market prices. Furthermore, we show how the demand requirement for reserve capacities can drive prices in the spot market. The models are tested using a dataset of the German electricity market. One result is that a more competitive reserve market helps to keep prices on the spot market low