Imbalance Price (Electricity Balancing Market)

According to Article 2(12) of the Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing, imbalance price is the price, be it positive, zero or negative, in each imbalance settlement period (ISP) for an imbalance in each direction.

The same definition of the imbalance price is used by the the so-called 'Winter Energy Package (Article 2(2)(o) of the Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD) and Article 2(16) of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast)).

Imbalance prices are determined at the imbalance price area level.

Title V of Commission Regulation (EU) 2017/2195 stipulates that to make balancing markets and the overall energy system fit for the integration of the increasing share of variable renewable energy, imbalance prices should reflect the real-time value of energy (the rule referred to in Recital 15 of Regulation (EU) 2019/943).

Also Article 6(5) of Regulation (EU) 2019/943 clearly states that the imbalances "shall be settled at a price that reflects the real-time value of energy".

This rule is supported by some market stakeholders, for example EFET Position paper of 31 January 2020 (Price formation and capacity withholding in light of Regulation (EU) 2019/943 and Regulation (EU) 1227/2011, p. 3) argues, “the imbalance price should not be regarded as a penalty to force market parties to stick to their schedules. Rather, the imbalance price should reflect the value of electricity in real time, which, as such, provides the correct economic signal to avoid imbalances or help the system”.

Implementation of the pay-as-cleared method to price balancing energy is envisioned, and the marginal pricing has been chosen as the preferred methodology, unless a different pricing method is proven to be more efficient in the long run.

An imbalance price will be calculated for each direction, these prices may however be the same, thus allowing the possibility of both single pricing and dual pricing (the choice of which is correlated with the length of the imbalance settlement period).

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ENTSO-E Network Code on Electricity Balancing, A EURELECTRIC comments paper, August 2013, p. 1

After real-time, the TSO charges or pays market participants depending on if they are short (have a shortage of supply vis-à-vis their nomination) or long (have a surplus), respectively. This payment or charge also depends on whether the entire system as a whole is long or short. These payments or charges are known as imbalance settlement prices and are allocated after real-time during the settlement process. Finally, the payments and charges are based on underlying balancing market prices, which in turn provide market participants that bear balancing responsibility with the incentive to have their demand and supply in balance so that overall deviations of the system are minimized. For the TSO this process should be a 'zero-sum' game where he has no financial interest and bears no financial risk.

In order to disincentivise aggravation of the system imbalance, the imbalance price for imbalances aggravating system imbalances should at least be related to the average price of balancing energy activated within the area.

Pursuant to Article 55 of the said Commission Regulation 2017/2195 each Transmission System Operator (TSO) defines rules to calculate the imbalance price to be paid by the balance responsible party (BRP) to the TSO or received by BRP from the TSO.

The rules include a definition of the value of avoided activation of balancing energy from:

- frequency restoration reserves (FRR) or

- replacement reserves (RR).

Each TSO determines the imbalance price:

(a) for each imbalance settlement period;

(b) for each imbalance price area; and

(c) for each imbalance direction.

The imbalance price for shortage must not be less than:

(a) the weighted average price for activated positive balancing energy for FRRs and RRs; or

(b) in the event that no activation of balancing energy in either direction has occurred during the imbalance settlement period, the value of the avoided activation of balancing energy for FRRs or RRs.

The imbalance price for surplus must not be greater than:

(a) the weighted average price for activated negative balancing energy for FRRs and RRs; or

(b) in the event that no activation of balancing energy in either direction has occurred during the imbalance settlement period, the value of the avoided activation of balancing energy for FRRs or RRs.

Imbalance settlement price, in the event that both positive and negative balancing energy for FRRs or RRs have been activated during the same imbalance settlement period, will be determined for shortage and surplus based on at least one of the principles stated above.

All TSOs’ proposal of 16 July 2018 to further specify and harmonise imbalance settlement in accordance with Article 52(2) of the Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing (draft version for public consultation) envisions the following rules as regards the imbalance pricing:

1. in case a TSO identifies the need for stronger incentives, the TSO may propose to its relevant regulatory authority to apply a scarcity or an incentivising component in imbalance pricing,

2. each TSO may only use the following volumes for calculating the imbalance price for each of its imbalance areas belonging to a given imbalance price area, for each imbalance settlement period and for each direction:

(a) the volume, per direction and product, of balancing energy for frequency restoration process requested by this TSO and fulfilled by standard or specific products, or by the integrated scheduling process;

(b) where applicable, the volume, per direction and product, of balancing energy for replacement process requested by this TSO and fulfilled by standard or specific products, or by the integrated scheduling process;

(c) where applicable, the volume of intended exchange of energy as a result of the imbalance netting process.

Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast) includes the rule that requires the TSOs or their delegated operators to publish, as close to real time as possible but with a delay after delivery of no more than 30 minutes, the current system balance of their scheduling areas, the estimated imbalance prices and the estimated balancing energy prices (Article 6(13)).

Dual/single imbalance pricing

The Agency for the Cooperation of Energy Regulators (ACER) in its Recommendation No 03/2015 of 20 July 2015 on the Network Code on Electricity Balancing proposed that the single price for a positive and negative imbalances should be implemented, with the possibility to use a dual price when a TSO provides the justification that it meets the criteria envisaged in the proposal for harmonisation of imbalance settlement.

All TSOs’ proposal of 16 July 2018 to further specify and harmonise imbalance settlement (draft version for public consultation) proposed the following definitions of dual/single imbalance pricing:

(a) 'dual imbalance pricing' means that, for a given ISP in a given imbalance price area, the price for negative imbalance is not equal to the price for positive imbalance in sign and/or size,

(b) 'single imbalance pricing' means that, for a given ISP in a given imbalance price area, the price for negative imbalance and the price for positive imbalance are equal in sign and size.

Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing

Article 30
Pricing for balancing energy and cross-zonal capacity used for exchange of balancing energy or for operating the imbalance netting process

1. By one year after the entry into force of this Regulation, all TSOs shall develop a proposal for a methodology to determine prices for the balancing energy that results from the activation of balancing energy bids for the frequency restoration process pursuant to Articles 143 and 147 of Regulation (EU) 2017/1485, and the reserve replacement process pursuant to Articles 144 and 148 of Regulation (EU) 2017/1485. Such methodology shall:
(a) be based on marginal pricing (pay-as-cleared);
(b) define how the activation of balancing energy bids activated for purposes other than balancing affects the balancing energy price, while also ensuring that at least balancing energy bids activated for internal congestion management shall not set the marginal price of balancing energy;
(c) establish at least one price of balancing energy, for each imbalance settlement period;
(d) give correct price signals and incentives to market participants;
(e) take into account the pricing method in the day-ahead and intraday timeframes.

2. In case TSOs identify that technical price limits are needed for efficient functioning of the market, they may jointly develop as part of the proposal pursuant to paragraph 1 a proposal for harmonised maximum and minimum balancing energy prices, including bidding and clearing prices, to be applied in all scheduling areas. In such a case, harmonised maximum and minimum balancing energy prices shall take into account the maximum and minimum clearing price for day-ahead and intraday timeframes pursuant to Regulation (EU) 2015/1222.

3. The proposal pursuant to paragraph 1 shall also define a methodology for pricing of cross-zonal capacity used for exchange of balancing energy or for operating the imbalance netting process. Such methodology shall be consistent with the requirements established under Regulation (EU) 2015/1222, and:
(a) reflect market congestion;
(b) be based on the prices for balancing energy from activated balancing energy bids, determined in accordance either with the pricing method pursuant to paragraph 1(a), or if applicable, the pricing method pursuant to paragraph 5;
(c) not apply any additional charges for the exchange of balancing energy or for operating the imbalance netting process, except a charge to compensate losses if this charge is also taken into account in other timeframes.

4. The harmonised pricing method defined in paragraph 1 shall apply to balancing energy from all standard and specific products pursuant to Article 26(3)(a). For specific products pursuant to Article 26(3)(b), the concerned TSO may propose a different pricing method in the proposal for specific products pursuant to Article 26.

5. Where all TSOs identify inefficiencies in the application of the methodology proposed pursuant to paragraph 1(a), they may request an amendment and propose a pricing method alternative to the pricing method in paragraph 1(a). In such case, all TSOs shall perform a detailed analysis demonstrating that the alternative pricing method is more efficient.

Article 55

Imbalance price

1. Each TSO shall set up rules to calculate the imbalance price, which can be positive, zero or negative, as defined in Table 2:
Table 2

Table 2

Payment for imbalance

Imbalance price positive

Imbalance price negative

Positive imbalance

Payment from TSO to BRP

Payment from BRP to TSO

Negative imbalance

Payment from BRP to TSO

Payment from TSO to BRP

2. The rules pursuant to paragraph 1 shall include a definition of the value of avoided activation of balancing energy from frequency restoration reserves or replacement reserves.

3. Each TSO shall determine the imbalance price for:
(a) each imbalance settlement period;
(b) its imbalance price areas;
(c) each imbalance direction.

4. The imbalance price for negative imbalance shall not be less than, alternatively:

(a) the weighted average price for positive activated balancing energy from frequency restoration reserves and replacement reserves;

(b) in the event that no activation of balancing energy in either direction has occurred during the imbalance settlement period, the value of the avoided activation of balancing energy from frequency restoration reserves or replacement reserves.

5. The imbalance price for positive imbalance shall not be greater than, alternatively:

(a) the weighted average price for negative activated balancing energy from frequency restoration reserves and replacement reserves;

(b) in the event that no activation of balancing energy in either direction has occurred during the imbalance settlement period, the value of the avoided activation of balancing energy from frequency restoration reserves or replacement reserves.

6. In the event that both positive and negative balancing energy from frequency restoration reserves or replacement reserves have been activated during the same imbalance settlement period, the imbalance settlement price shall be determined for positive imbalance and negative imbalance based on at least one of the principles pursuant to paragraphs 4 and 5.

Documentation

Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast), Article 2(16), 6(5), 6(13), Recital 15

Electricity Balancing Network Code (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing), Article 2(12), Article 30, Articles 55

EFET Position paper of 31 January 2020, Price formation and capacity withholding in light of Regulation (EU) 2019/943 and Regulation (EU) 1227/2011, p. 3

All TSOs’ proposal to further specify and harmonise imbalance settlement in accordance with Article 52(2) of the Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing, 16 July 2018, Draft version for public consultation

All TSOs’ proposal on methodologies for pricing balancing energy and cross-zonal capacity used for the exchange of balancing energy or operating the imbalance netting process pursuant to Article 30(1) and Article 30(3)

Explanatory Document to all TSOs’ proposal for a methodology to determine prices for the balancing energy and cross-zonal capacity used for exchange of balancing energy or for operating the imbalance netting process

Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD), Article 2(2)(o)

ENTSO-E Network Code on Electricity Balancing, A EURELECTRIC comments paper, August 2013, p. 1

Recommendation No 03/2015 of 20 July 2015 on the Network Code on Electricity Balancing

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