Bidding in sequential electricity markets: The Nordic case

Abstract

For electricity market participants trading in sequential markets with differences in price levels and riskexposure, coordinated bidding is highly relevant. We consider a Nordic power producer who engages inthe day-ahead spot market and the near real-time balancing market. In both markets, clearing prices anddispatched volumes are unknown at the time of bidding. However, in the balancing market, the agent facesan additional risk of not being dispatched. Taking into account the sequential clearing of these marketsand the gradual realization of market prices, we formulate the bidding problem as a multi-stage stochasticprogram. We investigate whether higher risk exposure can explain the hesitation, often observed in practice,to bid into the balancing market, even in cases of higher expected price levels. Furthermore, we quantify thegain from coordinated bidding, and by deriving bounds on this gain, assess the performance of alternativebidding strategies used in practice.