Balance of power

A new working paper co-authored by Hertie School Assistant Professor of Governance of Digitalisation and Energy Policy Lion Hirth shows how more efficient electricity trading can help reduce short-term balancing needs in an electricity system with a large volume of renewable energy.

Contrary to expectations that energy-balancing needs would grow with Germany’s greater dependency on variable energy from wind and sun, the dramatic expansion of renewables in recent years actually coincided with a decline in such needs. The requirement for holding reserves declined and reserves were also used less.  According to the paper, “Short-Term Electricity Trading for System Balancing - An Empirical Analysis of the Role of Intraday Trading in Balancing Germany’s Electricity System”, co-authored with Christopher Koch of the Berlin University of Technology, wind and solar energy have nearly doubled since 2011, while the need for and use of balancing reserves declined by 50 percent.  

One reason for this “German Balancing Paradox” is that short-term wholesale electricity trading has both increased and improved, the researchers say. Electricity trading now takes place around the clock in 15-minute segments. Shifting to 15-minute trading alone accounts for a 17 percent drop in the use of reserve power. 

“If markets are well-designed, the cost of integrating large volumes of renewable energy are likely to be moderate”, says Hirth. “But we need carefully designed markets for the transformation to be possible.”

The research, part of the IAEE and USAEE working paper series, is available for download online here.