Frequent Auctions for Intraday Electricity Markets

Abstract

Continuous trading is currently becoming the standard for intraday electricity markets. In this paper, we propose frequent auctions as a viable alternative. We argue that batching orders in auctions potentially leads to lower liquidity cost, more reliable, less noisy price signals, and allows for better alignment of market outcomes with the technical realities of the grid. In an empirical study, we compare the German continuous intraday market with counter-factual outcomes from frequent auctions. We find that while traded volumes tend to be higher for continuous trading, liquidity costs are lower and price signals contain less noise for the auction market. Furthermore, we critically discuss the suitability of continuous trading in the presence of network constraints and technical restrictions of conventional units. Taken together these findings suggest that in sparsely traded intraday markets, pooling orders in frequent auctions may be beneficial.

Keywords: Intraday power markets, frequent auctions, continuous trading, market design, electricity markets

JEL Classification: G1, L1, Q4