Modeling of the operating reserve market based on the theory of industrial organization

The adequacy of the design of operating reserve markets is essential to realize low tariffs for the customers. Due to the two-stage auctioning, an appropriate model is necessary to analyze the decision problem of the market players. Based on simplified assumptions, the presented concept is transferred to a sample market structure in order to derive the market behavior and the results. The model shows that because of the stochastic call of operating reserves arbitrarily high equilibriums for the energy bids are possible in theory. The market design with independent capacity and energy auctions cannot lead to prices near to the marginal costs.