|Imbalance Settlement (Electricity Balancing Market)|
|European Union Electricity Market Glossary|
Imbalance settlement is a core element of the balancing markets and means a financial settlement mechanism aiming at charging or paying balance responsible parties (BRPs) for their imbalances (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing, Article 2(9)).
ENTSO-E Explanatory document of 16 July 2018 mentions that imbalance settlement is applied throughout all European systems, and represents an annual value of approximately € 3.6 109, based on an imbalance cost estimation of € 1 per MWh consumed.
As the said document further observes, the imbalance settlement methodologies:
- are non-uniform and may distort a level playing field for BRPs and balancing service providers (BSPs), at least between different countries,
- are deeply embedded in business processes and systems of Transmission System Operators (TSOs), BRPs and BSPs, as are expected imbalance prices and imbalance cashflows of market participants, TSOs and grid users.
Recital 17 of the said Commission Regulation (EU) 2017/2195 of 23 November 2017 (Network Code on Electricity Balancing - NC EB) indicates the general objective of imbalance settlement is to ensure that BRPs support the system's balance in an efficient way and to incentivise market participants in keeping and/or helping to restore the system balance.
The NC EB describes the general objectives of imbalance settlement and defines imbalance settlement rules that support competition among market participants by creating a level-playing field without discrimination, and ensure that it is made in a non-discriminatory, fair, objective and transparent basis.
The general principle of imbalance settlement is that all injections and all withdrawals should be covered by balancing responsibility (the rule reinstated by the ACER's Framework Guidelines on Electricity Balancing of 18 September 2012), and, depending on the state of the system, an imbalance charge is imposed per imbalance settlement period on the BRPs that are not in balance.
It typically aims at recovering the costs of balancing the system and include incentives for the market to reduce imbalances – e.g. with references to the wholesale market design – while transferring the financial risk of imbalances to BRPs.
Current dominant regulatory trend is that also renewable energy sources should be made financially responsible for their imbalances (see for example ACER's Opinion No 07/2014 of 21 March 2014 on ENTSO-E Network Code on Electricity Balancing).
ENTSO-E Final Supporting Document of 6 August 2014 for the Network Code on Electricity Balancing describes technical rules for the imbalance settlement as follows:
1. the sum of the trades of a BRP (buy and sell) to others should match the net energy infeed/withdrawal over the connections for which the BRP carries responsibility;
2. in order to assess this, the following volumes are therefore defined:
- a notified position (scheduled position) reflecting the final net volume of commercial transactions on all timescales on organised markets or between BRP's, or where appropriate the scheduled injections and withdrawals,
- an allocated value (usually based on metered values or profiled values), reflecting the net volume of realized physical generation and consumption over the connections for which the BRP is responsible,
- an adjusted volume reflecting the activation of balancing energy bids associated with this BRP, at least at balancing energy bid level.
For BRPs that do not cover any injections or withdrawals (as a pure trader could be) the step to calculate the allocated volume is not needed, as this volume will be zero by definition (for simplicity purposes, the allocated volume for this kind of BRP is not calculated - which would be effectively the same as saying that this volume is zero).
The above dependencies are reflected in the text of Article 54(5) of the Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing, which stipulates that allocated volume shall not be calculated for a balance responsible party which does not cover injections or withdrawals.
The imbalance settlement must ensure that imbalances are settled at a price that reflects the real-time value of energy (Recital 17 and Article 44(1)(b) of the said Regulation).
ACER/CEER Annual Report of November 2015 on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014 (p. 211) argues that if the costs of balancing and congestion management are not properly disentangled, this is likely to distort the cost reflectivity of imbalance charges.
According to the said ACER's Report of November 2015 some other elements may also impede imbalance charges reflecting the flexibility value adequately.
The aforementioned ACER's Report of November 2015 observes that the imbalance settlement mechanisms in the EU Member States are heterogenous, the effect of this are different imbalance charges in different markets.
When the cross-border trade in balancing services becomes more frequent, the lack of harmonisation in the settlement of imbalance charges may reduce the efficiency of balancing markets' integration.
This is because BRPs would be facing different price incentives according to their location.
The general principles of imbalance settlement, which the TSOs are inevitably required to respect, are laid down in the Article 44(1) of the NC EB, and include, inter alia, the obligations to:
(a) establish adequate economic signals which reflect the imbalance situation;
(b) ensure that imbalances are settled at a price that reflects the real time value of energy;
(c) provide incentives to balance responsible parties to be in balance or help the system to restore its balance;
(d) facilitate harmonisation of imbalance settlement mechanisms;
(f) avoid distorting incentives to balance responsible parties, balancing service providers and TSOs;
(g) support competition among market participants;
(h) provide incentives to balancing service providers to offer and deliver balancing services to the connecting TSO.
The inherent, essential feature of imbalance settlement is financial neutrality of all TSOs (Article 44(1)(i) of the NC EB).
Article 44(2) of the said Regulation stipulates that TSOs must not incur economic gains or losses with regard to the financial outcome of:
- settlements of balancing energy,
Any positive or negative financial outcome as a result of the above settlements must be passed on to network users in accordance with the applicable national rules.
Harmonised elements of imbalance settlement in the European electricity market in accordance with NC EB are as follows:
(a) the imbalance period shall be harmonised to 15 minutes by three years after entry into force of the NC EB (unless the TSOs of a synchronous area jointly request an exemption that is granted by the relevant regulatory authorities in accordance with Article 53 of the NC EB, or unless a regulatory authority grants a derogation of the harmonisation of the imbalance settlement period (ISP) in accordance with Article 62(1) and Article 62(2)(d) of the NC EB);
(b) there are no exemptions to balance responsibility in accordance with Article 18(6)(a) and Article 44(4) of NC EB;
(c) the final position of all balance responsible parties in self-dispatching models to be used in imbalance calculation is equal to the sum of the internal and external commercial trade schedules in accordance with Articles 54(3)(a) and 54(3)(b) of the NC EB;
(d) all balancing energy activated by each connecting TSO for at least frequency restoration process and reserve replacement process shall be adjusted to the concerned balance responsible parties assigned by the balancing service provider in its balancing energy bid, in accordance with Article 18(4)(d) and Article 49 of the NC EB;
(e) the imbalance settlement harmonisation proposal distinguishes, where appropriate, between self-dispatching models and central dispatching models in accordance with Article 52(3) of the NC EB;
(f) the financial neutrality of each TSO and its ensurance by each relevant regulatory authority including additional settlement mechanisms with balance responsible parties separate from imbalance settlement in accordance with Articles 44(2) and 44(3) of the NC EB are not under the scope of the imbalance settlement harmonisation proposal;
(g) the imbalance settlement harmonisation proposal shall not address nor harmonise the rights of BRPs to change internal trade schedules after intraday cross-zonal gate closure time in accordance with NC EB Article 17(4);
(h) terms and conditions for balancing service providers and balance responsible parties in accordance with Article 18 of the NC EB remain a national responsibility but have to respect the NC EB;
(i) the imbalance settlement harmonisation proposal ensures consistency in settlements by proposing a rational relation between implementation dates for 15-minute ISPs, dual pricing and dual position;
(j) the specification of single position and single pricing for self-dispatch models serves to create a level playing field for small market players and renewables and is an important step when facilitating an efficient framework for aggregation and storage.
Article 52 of the said Commission Regulation 2017/2195 stipulates that all TSOs must develop, by 18 December 2018, a proposal harmonising further specific parameters of imbalance settlement, including at least:
(a) the calculation of an imbalance adjustment pursuant to Article 49 of the NC EB and the calculation of a position, an imbalance and an allocated volume following one of the approaches pursuant to Article 54(3) of NC EB;
(b) the main components used for the calculation of the imbalance price for all imbalances pursuant to Article 55 of the NC EB, including, where appropriate, the definition of the value of avoided activation of balancing energy from frequency restoration reserves or replacement reserves;
(c) the use of single imbalance pricing for all imbalances pursuant to Article 55 of the NC EB, which defines a single price for positive imbalances and negative imbalances for each imbalance price area;
(d) the definition of conditions and methodology for applying dual imbalance pricing for all imbalances pursuant to Article 55 of the NC EB, which defines one price for positive imbalances and one price for negative imbalances for each imbalance price area, encompassing:
- conditions on when a TSO may propose to its relevant regulatory authority in accordance with Article 37 of Directive 2009/72/EC the application of dual pricing and which justification must be provided;
- the methodology for applying dual pricing.
TSOs‘ proposition in this regard (Draft version for public consultation, 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) is dated 16 July 2018 (see links below).
This proposal, pursuant to Article 5(2)(j) of the NC EB, is subject to approval by all relevant regulatory authorities in accordance with Article 27 of Directive 2009/72/EC.
According to the said TSOs’ document of 16 July 2018 the proposed harmonisation of imbalance settlement will apply to all exisiting and future imbalance areas and to all imbalance settlement periods and all system states, except for those imbalance areas and imbalance settlement periods:
(a) for which market activities have been suspended;
(b) for which the concerned TSO has received approval from the relevant regulatory authority to apply rules for imbalance settlement and settlement of balancing energy and balancing capacity that deviate from the rules it applies for normal operations, (pursuant to Article 39(1) of the Regulation (EU) 2017/2196 - NC ER).
Network Code on Electricity Balancing (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing - NC EB), Article 2(9), Article 44(2), Article 52, Recital 17
|Last Updated on Saturday, 01 September 2018 12:49|