Session 4 Flashcards
Definition of settlement
Monitoring and metering the actual physical positions of BRPs against their contracted positions (schedules)
Settling imbalances financially when actual delivery or offtake does not match contractual positions
What’s the imbalance (settlement) price?
How to calculate it?
Price of activating reserves.
Not an equilibrium like the spot market.
Price or Payment = deviation (MWh) * imbalance settlement price (€/MWh)
Three perspectives on the imbalance price
‘As what can the imbalance price be seen?’
- Cost allocation and “polluter pays” (recover the costs for activating balancing reserves)
- A penalty for deviations (BRPs should stick as close to their individual schedules as possible, imbalance price is a financial incentive to do so)
- An incentive for stabilizing the system (BRPs should help stabilize the system by being out-of-balance in the “right” direction)
Different approaches to calculating the imbalance price (no formula)
Average vs. marginal pricing
Price discrimination in imbalance settlement
Non-discriminatory pricing: all BRPs pay the same settlement
Price discrimination by direction of deviation:
1. The same price applies to upward and downward deviations.
2. Two-price system: different prices apply for deviations in the “right” and “wrong” direction
–> favors larger players
What’s the marginal cost of balancing?
Costs to compensate an additional imbalance of 1 MW
5 ways to aggregate aFRR prices
- Average of all 225 marginal aFRR prices (225 4-second prices/periods per quarter hour)
- Hypothetical constant activation (marginal aFRR price if system imbalance was constant throughout imbalance settlement period)
- Average of aFRR prices for activation opposing the average system imbalance
- Costs divided by volume (Net costs of aFRR activation divided by net activated volume)
- Momentary price signal (last 4 second aFRR price sets the imbalance price for the quarter hour)
Germany’s imbalance settlement price (name, formula)
reBAP
reBAP = net costs / net activation = (cost - revenue) / (upward activation - downward activation)
–> both upward and downward in one, as the price is for quarter hours and both can apply in one quarter hour
Price ceilings for reBAP
- limit reBAP to highest energy price activated
- linear function based on ID prices for imbalances 125 MW to 500 MW
Price adder for larger reBAP volumes
In critical situations with most reserves being activated, the imbalance charge can still be modest, or even reward harmful behavior.
Price adder: If system imbalance exceeds 80% of reserves.
What’s the imbalance price spread? (“formula”)
Imbalance price spread = Imbalance price - Wholesale price
E.g. someone offers to buy at 200€/MWh while the wholesale price is 100€/MWh, you “sell” to him but don’t deliver and make a margin of 200€-100€-imbalance price
How to approach forecasting the imbalance settlement price?
- Projections strategy: use public data
- Insider strategy: participate in balancing market
How is the short-term response to the balancing incentive is called, when the intraday price makes delivering less attractive?
Strategic deviations
In the balancing system (market for imbalance energy) what is supply, what is demand?
What are demand- and supply shifters?
Supply: Cost of reserve activation (by TSO)
Demand: BRPs’ price responsiveness
Demand-shifters: forecast errors of wind/solar/load, intraday prices
Supply-shifters: Cost of balancing energy, net import of balancing energy
Effect of the imbalance price on the intraday price
+ direct effect
+ infirect effect
Small but significant effect: An increase by 1€/MWh in the imbalance price causes an increase of 0.10€/MWh in the ID
Direct effect: BRP adjust their position to mitigate the thread of the imbalance price penalty.
Indirect effect: The adjustment of positions lowers the system imbalance. A lower imbalance causes BRPs to sell at the intraday market in the expectation of lower imbalance prices.
