Competition in Germany’s Minute Reserve Power Market: An Econometric Analysis

Abstract

The German reserve power market has been subject to important regulatory changes in recent years. A new market design has been introduced by synchronizing and interconnecting the four regional German control areas. We analyze whether the reforms have led to lower prices for minute reserve power (MRP). In contrast to existing papers, we use a unique panel dataset to account for unobserved heterogeneity between the four German regional markets. Moreover, we control for endogeneity by using weather data as instruments for electricity spot market prices. We find that the reforms were jointly successful in decreasing MRP prices leading to substantial cost savings for the transmission system operators.