Date of This Version

June 2013


Control power (regulating power, balancing power) is used to quickly restore the supply-demand balance in power systems. Variable renewable energy sources (VRE) such as wind and solar power are often thought to increase the reserve requirement significantly. This paper provides a comprehensive overview of balancing systems in Europe, discusses the role of VRE, and presents empirical market data from Germany. Despite German VRE capacity doubled during the last five years and has surpassed 70% of peak load, contracted control power decreased by 20%, and procurement cost fell by 50%. Today, control power adds only 0.4% to household electricity prices. Nevertheless, we identify several sources of inefficiency in control power markets and imbalance settlement systems and propose a number of policy changes to stimulate the participation of VRE in control provision and to improve the incentives to forecast accurately.