Classification of balancing markets based on different activation philosophies: Proactive and reactive designs

Following the vision of an European energy union, electricity markets, including balancing markets, are being integrated. Considerable balancing market design differences between areas in some cases necessitate harmonization processes. Some aspects of balancing market design are heavily influenced by the activation philosophy of the Transmission System Operator (TSO), which again may depend on unique structural conditions. This paper identifies the key balancing market design variables influenced by the activation philosophy of the TSO and presents a set of indicators for proactive and reactive market designs. The indicators are used to classify various balancing markets in Northern Europe, based on their market incentives and use of proactive activations.