Lion Hirth and team research electricity balancing as a market equilibrium in new study for Energy Economics 

Electricity balancing is the process of equalizing the supply and demand of electricity. Shocks like power plant outages can cause imbalances in the electricity system, which are addressed by system operators through the activation of reserve capacity. This process is commonly understood as a linear process. However, in a paper published for Energy Economics entitled 'Electricity balancing as a market equilibrium: An instrument-based estimation of supply and demand for imbalance energy', Anselm Eicke, Oliver Ruhnau, and Lion Hirth from the Hertie School Centre for Sustainability interpret the balancing system as a market where the equilibrium price (imbalance price) and quantity (system imbalance) are determined by supply and demand.

By estimating the demand curve of imbalance energy from historical German data, the study reveals that the system imbalance is highly sensitive to the imbalance price. The authors find that the demand for imbalance energy in Germany declines by 2.2 MW for each increase in the imbalance price by 1 EUR per MWh.  

The leading author on the paper, Anselm Eicke, reflects on the importance of their study. “It is no secret that balancing responsible parties respond to the economic incentives that arise from the imbalance price, but our framework allows quantifying the effect of this behavior. We hope this analysis can contribute to a further improvement of the regulatory framework”. 

The paper was published in Energy Economics, a top interdisciplinary journal in the field of energy.

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