Strategic bidding in a primary reserve auction

Abstract

Electricity grids are subject to a constant change of demand. If a power line is overloaded, the demand is rerouted to another line, which is then also likely to overload due to the sudden spike in voltage. Due to this cascading effect a grid-wide blackout is not at all improbable; one occurred in Italy in 2003. The costs of such a blackout are immense in today’s modern society. Transport and telecommunication systems have such a high power demand that a backup power generator system would come at a very high cost. To solve this, Germany requires the electricity grid operators to have Primary Reserve Capacity on standby...