Executable-Price-Based Valuation of Flexible Generation Assets in Fragmented Intraday Electricity Markets
Type
conference contribution
Date Issued
2026-08-27
Author(s)
Abstract
The increasing importance of renewable generation has amplified the economic value of operational flexibility in electricity markets. Conventional approaches to valuing flexible generation assets model generation units as real options whose payoff depends on future electricity prices, where the price distributions are typically derived from observed transac-tion prices. However, in the last trading phase of the German intraday market (Single De-livery Area Trading, SDAT), this approach becomes problematic because trading takes place separately within individual control areas. Thus, liquidity is fragmented, and trans-action activity is sparse. In some areas, particularly during off-peak hours, few or no transactions are observed despite the presence of non-empty order books. As a result, transaction-based price models may fail to reflect actual trading opportunities available to market participants.
To estimate profit opportunities in the SDAT phase, we move the analysis from realized transaction prices to executable prices derived from the bid and ask sides of the order book, i.e., synthetic execution prices at which a certain volume could be sold or bought. For the operator of a generation or storage unit, these prices at which capacity of a certain size could be monetarized, conditional on prevailing order book depth and spread in the respective control area, are the economically (more) relevant objects.
In a case study, we compare the revenue opportunities in the intraday market during the SDAT phase with those in the balancing energy market. We interpret a flexible generation asset as a real option whose strike price is defined by its marginal generation costs and calculate its value in both markets, conditioned on the latest available information. As the capacity can only be marketed once, the operator would place a bid in the market where higher revenues are expected. In this way, we obtain a simple rule-based framework if a flexible capacity should be offered in the intraday or in the balancing energy market. As benchmark, we evaluate the revenues that could have been realized during the sample period in the individual markets from an ex-post analysis, which reveals significant differ-ences between "liquid" and "illiquid" control areas. The combined bidding strategy based on the rule-based approach leads to considerable improvements, meaning that the model is economically meaningful.
The proposed framework provides a practical method for quantifying the option value of flexible assets under realistic liquidity constraints and offers a new perspective on the eco-nomic value of flexibility in fragmented and illiquid short-term electricity markets.
To estimate profit opportunities in the SDAT phase, we move the analysis from realized transaction prices to executable prices derived from the bid and ask sides of the order book, i.e., synthetic execution prices at which a certain volume could be sold or bought. For the operator of a generation or storage unit, these prices at which capacity of a certain size could be monetarized, conditional on prevailing order book depth and spread in the respective control area, are the economically (more) relevant objects.
In a case study, we compare the revenue opportunities in the intraday market during the SDAT phase with those in the balancing energy market. We interpret a flexible generation asset as a real option whose strike price is defined by its marginal generation costs and calculate its value in both markets, conditioned on the latest available information. As the capacity can only be marketed once, the operator would place a bid in the market where higher revenues are expected. In this way, we obtain a simple rule-based framework if a flexible capacity should be offered in the intraday or in the balancing energy market. As benchmark, we evaluate the revenues that could have been realized during the sample period in the individual markets from an ex-post analysis, which reveals significant differ-ences between "liquid" and "illiquid" control areas. The combined bidding strategy based on the rule-based approach leads to considerable improvements, meaning that the model is economically meaningful.
The proposed framework provides a practical method for quantifying the option value of flexible assets under realistic liquidity constraints and offers a new perspective on the eco-nomic value of flexibility in fragmented and illiquid short-term electricity markets.
Funding(s)
Swiss Federal Office of Energy; ERA-Net Smart Energy Systems' focus initiative Digital Transformation for the Energy Transition, with support from the European Union's Horizon 2020 research and innovation program under grant agreement No 883973.
Language
English (United States)
Keywords
Electricity trading
Short-term electricity markets
Balancing energy market
HSG Classification
contribution to scientific community
Refereed
No
Event Title
International Ruhr Energy Conference (INREC) 2026
Event Location
Essen
Event Date
27.08.2026
Subject(s)
Contact Email Address
michael.schuerle@unisg.ch
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MSchuerle_2026-08-27.pdf
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Format
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