This article is published in the September issue of Utilities magazine.
At the beginning of September, it is expected that the new Electricity Trading Rules (ETR) will come in force and will be applied at the beginning of October. The changes in ETR, which were proposed by the Electricity System Operator (ESO) in its role as a balancing market operator and adopted by the Energy and Water Regulatory Commission (EWRC), focus on three important areas:
– Introduction of a 15-minute settlement period on the balancing market
– Transition to a single price model for balancing energy
– New methodology for pricing balancing energy
The three new mechanisms are planned to be applied from October 1, 2022. In addition to them, a procedure is underway to amend the rules of the Independent Bulgarian Energy Exchange (IBEX) with the aim of introducing 15-minute products on the Intraday market.
The new, shorter settlement period (from 1 hour to 15 minutes) is aimed to facilitate more accurate forecasting and balancing, which in turn will reduce imbalance costs for market participants. The introduction of a 15-minute settlement period aims to provide an opportunity for participants to balance as close to real time as possible, which would help wind and photovoltaic plants, which due to dynamic changes in weather conditions often register deviations between forecast and actual production. This is so in theory, but in practice it is still too early to say what the effect will be. There is no planned transition period to test the new model and assess its impact. A test period is currently running, but it is incomplete, as ESO does not yet provide information on consumption in 15-minute intervals and does not use the new methodology for determining balancing prices. Moreover, the platforms of the energy exchange currently do not allow the purchase of 15-minute products
The new methodology follows the German balancing model, where a single imbalance price is applied for each settlement period (15 minutes), the price for deficit is equal to the surplus price. In this model, if the trading participant helps the balancing of the system, he receives a more favorable price for imbalance. For example, if the system is in deficit, i.e. there is a need for electricity, and a participant is in surplus, i.e. has “excess” energy, then this “excess” helps the overall system balance. Therefore, the surplus participant covers part of the system deficit and accordingly receives a more favorable balancing price. Details of how the new balancing price model will work are presented in the tables below:
|System in Deficite||Position of the BRP||Imbalance price||Payment direction|
|BRP (balancing responsible party) in DEFICIT||Highest price, at which ESO buys balancing energy||BRP -> ESO|
|BRP in SURPLUS||Highest price, at which ESO buys balancing energy||ESO à BRP|
|System in Surplus||Position of the BRP||Imbalance price||Payment direction|
|BRP in DEFICIT||Lowest price, at which ESO sells energy||BRP -> ESO|
|BRP in SURPLUS||Lowest price, at which ESO sells energy||ESO ->BRP|
What will be the effect for the end consumers and producers? Most end customers and small producers (mainly from RES) will not even notice the change initially because the price they pay for balancing is included in service they receive. For larger consumers and producers, the differences will be noticeable in the first months, from October to the end of 2022.
If the cap balancing prices (currently in force) are not preserved, as indicated by EWRC, extreme and negative balancing electricity prices will be observed on the Bulgarian market. At first the balancing prices will be unpredictable and will lead to higher costs for imbalances. Subsequently, however, after market participants carry out the necessary internal analyzes and a full assessment of the impact of the model change, based on real data, and reconfigure their systems and processes, the new model is expected to reduce balancing costs. It is still difficult to assess the specific market impacts of the introduction of the new balancing model. There will certainly be an adaptation period for market participants and changes in the conditions and principles for distributing imbalances to end customers and RES producers.
Although not always a visible part of the invoices, balancing costs can make up to 5%-10% of the final price of electricity. With the expected high prices in the coming months (Figure 1), their absolute value will also increase. It is therefore very important to envisage mechanisms like in Germany for example, which will eliminate the possibility of achieving extremely high or highly negative imbalance prices. Otherwise, during the winter months, imbalance prices will also be one of the factors leading to an increase in the electricity bills.
Figure 1. Expected price levels for the next 7 months
*Data is up to date as of 31.08.2022. Quotations from the European Energy Exchange and the Hungarian Derivative Energy Exchange were used for the price projections.