Design of power markets

Market design

Power trading, on exchanges or in the form of balancing power, is subject to rules and regulations. This set of rules is called “market design”. It defines, for example, the penalties that generators or retailers have to pay for under- or over-supply or demand of electricity. In some jurisdictions, the state determines the amount of generation capacity that is required and uses capacity payments to ensure this amount is built. In other regions, investment incentives are provided by price spikes on spot markets. In 2015, Germany decided to keep such an “energy-only” spot market design.


Neon is involved in a number of studies on power market design. With the consulting company FTI CompassLexecon we are implementing a report for IEA RETD on “Market design at very high shares of renewables”. The Neon report on design of markets for Balancing power is cited widely. At the IEWT conference in Vienna Lion Hirth gave a keynote on market design.

How scarcity pricing works

Scarcity pricing