An assessment of the newly proposed strategic reserve in Germany

In order to deal with the effects of the "Energiewende", in November of 2014 the German government outlined the future regulatory framework of the national electricity market. Among the suggested new measurements is a strategic reserve that will be used in situations of peak demand when in the spot market clearing cannot be achieved. The size of this strategic reserve is expected to be around 5 GW, approximately 5% of the current peak load. In this paper, for the first time a detailed agent-based simulation model is used to analyze the effects of the implementation of a strategic reserve on electricity prices and investments. The results show that this instrument considerably improves the security of supply and its yearly costs range from 50 to 300 million Euros depending on market scarcity. However, in extreme situations, e.g., high penetration of fluctuating renewable energy sources and very volatile cash flows for investors, capacity markets might provide more efficient ways to ensure security of supply.