The proposed amendments in the Electricity Trading Rules (ETS) change the operation and organization of the balancing market. This change will result in an increase of costs for balancing energy and a corresponding increase in the final price of electricity. It takes place in a situation with record wholesale electricity prices, where many businesses are experiencing difficulties and even stopped operations. Any additional price increase in this period will have an even stronger negative effect on those consumers.
What is changing?
Тhe possibility of merging balancing groups with single financial settlement.
What will be the effect?
The quantities of imbalances for the majority of market participants (producers, traders and especially end users) will increase, because the balancing groups will be fragmented. As a result, they will have a significantly smaller number of participants, which leads to limited opportunities for netting of imbalances and hence increasing the overall imbalance of the group. As a result, the quantities for which electricity will be paid at higher balancing price rates and the costs per unit of electricity consumed will increase. The change will alter competition, eliminate smaller suppliers and result in concentration of participants in few balancing groups.
How will it affect electricity prices?
Balancing costs are important because they make up 5% – 10% of the final price of electricity, and traditionally and seasonally they are the highest in the winter months. According to expert estimates, the proposed change will lead to a doubling of these costs.
The restriction concerning balancing groups is a step in the opposite direction of liberalization. The prices of the balancing energy for shortage are linked to the Day ahead market (DAM) of the Independent Bulgarian Energy Exchange (IBEX). The trend since the launch of the power exchange is rising DAM prices, therefore balancing costs increase accordingly. The main tool for minimizing this effect is reducing imbalances and their distribution among many participants part of balancing groups with joint financial settlement. Otherwise, the balancing costs in some months will be unbearable for small and medium-sized players.
Coordinators’ imbalance costs do not depend mainly on scarcity prices, an argument often used to support the changes in ETR. The major problem currently are the extremely low prices for surplus, ranging from 0 to 20 BGN or about 11 BGN on average for October 2021. The great benefit of joint balancing groups are fair prices of both surplus and shortage. With the current high prices on the power exchange, it is the unrealistically low surplus prices that are the big problem for all participants.
Who will be affected?
The proposed changes will affect RES and Co-gen producers, traders and especially end consumers part of joint balancing groups. It is proposed to eliminate the possibility of joint financial settlement only for standard and combined balancing groups, which are part of the liberalized market.
What is the position of ATEB?
The proposals for amendments in ETR are to the detriment of market participants and we call for their withdrawal. ATEB fully supports the urge of reforms in the operation of the balancing market, but they must aim at a reduction of imbalances and costs. We believe that the model of operation should be revised and from two balancing price model to move to a model with one price. A similar transition was made in neighboring countries, Serbia and Romania, and implemented in the developed markets in Western Europe.