The impact of varying system flexibility on market prices for electricity and balancing reserves

The goal of this paper is twofold. At first, we provide a modeling framework to derive a consistent view on spot and balancing reserve markets. Secondly, we use this approach to determine the impact of increasing system flexibility via scenario analysis for day-ahead electricity and capacity reservation for balancing reserves, focusing particularly on the German electricity system for the year 2030. While fundamental modeling of spot market prices in the mid-term or long-term has been well established, it is quite ambitious to derive a consistent view on future balancing reserve markets. To achieve this goal, we use a two-step modeling approach to determine the equilibrium on both markets. Minimizing the opportunity costs for capacity reservation of the supply-side, we determine balancing reserve market bids that are consistent with spot market prices. The scenario analysis reveals a strong market position for battery storage regarding Frequency Containment Reserve (FCR) and positive automatic Frequency Restoration Reserve (aFRR). Due to the lower opportunity cost compared to fossil-fueled power plants, capacity prices for these market segments are diminished by battery storages.