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The new dynamics of imbalance prices
Write by Amélie Janin and Alexis Gléron, juin 2024
It’s not the most well-known or the most pleasant electricity price, but its dynamics are very interesting right now, so it certainly deserves an article (plus, it holds a special place in the hearts of us balance responsible parties).
Yes, this article will discuss imbalances prices and their current upheavals.
How is the imbalance price calculated exactly?
The imbalance price serves as a financial incentive for balance responsible parties (BRPs) to remain balanced or to balance the system. What does it mean for a BRP to be balanced? Injections must be equal to withdrawals within their perimeter; if not, they are in imbalance.
Before understanding how the imbalance price is calculated, let’s take a moment to understand how the imbalance volume of a BRP is calculated.
This small diagram illustrates the different elements used to calculate the imbalance volume.
Source : RTE
Do you understand everything? Are you now well-versed in withdrawals and injections? Let’s now move on to imbalance prices.
The calculation of the imbalance price depends on the balancing trend of the system, the sign of the BRP’s deviation, as well as the volume weighted average price of activations (VWAP) and the applicable value of the coefficient 'k'.
Source : RTE
In order to understand the different scenarios well, let’s take each variable one by one.
BALANCE = INJECTIONS - WITHDRAWALS = 0
The balancing trend of the system
As with the BRP's deviations, there are two possibilities:
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The imbalance of the electrical system is positive; we say that the trend is downward.
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The imbalance of the electrical system is negative or zero; we say that the trend is upward.
The Volume Weighted Average Price (VWAP)
The VWAP is the volume weighted average price of the various energies that will be used to meet RTE's needs to achieve system balance, that is, the energies activated in France, abroad, and from the various reserves (RR, mFRR, aFRR). The VWAP can be upward ( price of correcting a negative imbalance) or downward (price of correcting a positive imbalance).
The value of the coefficient k
Since January 1, 2023, the coefficient k is set ex-ante: RTE establishes it in M-3 for M. The coefficient k penalizes the deviation and thus encourages the BRP to remain balanced.
Source : RTE
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The balance responsible partie (BRP) imbalance
The imbalance volume of the BRP’s portfolio: here, we are only concerned with the difference between the injections and the withdrawals present in the balance perimeter.
A bit of mental exercise is necessary; otherwise, one can quickly get tangled up with all these signs, making interpretation complicated and a headache imminent. Fortunately for you, Augmented Energy cares about the well-being of its dear readers. Therefore, we will make things easier for you through this table.
Great, the calculation of the imbalance price and the financial settlement related to a BRP imbalance hold no secrets for you anymore! However, the story is not over. Now that the calculation is understood, we need to examine the new dynamics that influence the imbalance price. Indeed, you have certainly noticed (or not) in recent months a strong volatility in the imbalance price as well as extreme spikes. How can this be explained?
Why the imbalance price became extremely volatile?
Several factors explain this phenomenon of high variability.
During periods of low demand, the electrical system reveals its limitations in terms of flexibility. As a reminder:
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An upward system: not enough energy. We need to produce and reduce consumption. Example: activation of thermal power plants, industrial demand response.
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A downward system: too much energy. We need to consume and reduce production. Example: shutdown of power plants (difficult to implement), industries must consume more.
We are witnessing an increase in solar energy, which, let’s remember, is a variable energy. Favorable weather conditions and initiatives to reduce energy consumption are helping to keep electricity demand low. As a result, spot electricity prices are low, and thermal power plants (gas and coal) are not running, or nuclear plants are operating at reduced capacity for many hours of the day.
They therefore cannot lower their production further (as they are already not in service), revealing the current system's lack of downward flexibility. Pumping capacity in pumped-storage hydropower plants (PSP) is quickly saturated, and solar and wind energy do not yet participate in reserves.
During periods of low demand, the ability to rapidly reduce production or increase French consumption is very limited.
Another factor contributing to this volatility is a recent regulatory change: the reopening of the aFRR (Automatic Frequency Restoration Reserve) to competition. Previously, spot prices were used to remunerate aFRR activations. However, since autumn 2023, the energies activated under aFRR are now integrated and influence the calculation of imbalance prices through their weighted average price.
Source : RTE, prix du 11/05
Example of 11th may 2024
Source : RTE, prix du 11/05
We observe that the positive imbalance settlement price (PRE+) has a negative value, and that’s where the trouble begins. What does this mean, and what does a negative PRE+ signify? To recap, a PRE+ applies when your imbalance is positive, meaning you have more injections than withdrawals in your balancing area. If the PRE+ is negative, you pay to inject energy into the grid. Aggregators with a positive imbalance on May 11, 2024, had to pay €4,182.43/MWh for their injections into the grid that were not offset by their withdrawals. Conversely, aggregators with a negative imbalance were paid 3,697.79€/MWh by RTE. During this same time period, the spot price was also negative, but to a lesser extent. It was at -11.64€/MWh.
PICASSO Platform: A new factor in imbalance price dynamics
RTE was originally scheduled to join the PICASSO platform in June or July 2024. However, RTE decided to postpone its entry to the fall 2024, giving the European energy regulator, ACER, time to resolve the various issues with the platform. The purpose of this platform is to facilitate the exchange of secondary balancing energy (aFRR) between the different European transmission system operators (TSOs). The platform is an initiative of 26 European TSOs. Italy, one of the operational members of the PICASSO platform, withdrew in March due to excessive price volatility. In fact, the Italian TSO (Terna) saw a 16-fold increase in the premiums it received from the regulator since joining PICASSO.
“Since its launch in June 2022, the PICASSO platform has been characterized by occasional episodes of very high marginal prices. These unpredictable episodes can prove particularly costly for balance responsible parties in countries connected to the platform.”
CRE Deliberation, No. 2024-44 - February 29, 2024
How to reduce the volatility risk of the imbalance price?
As previously explained, the lack of flexibility becomes particularly evident when the system experiences an oversupply (referred to as "downward" situations). To mitigate this risk of volatility, it is essential to develop flexibility capabilities.
Flexibility capabilities primarily refer to energy storage and demand-side flexibility. Unfortunately, for this year, there are no miracle solutions, as these flexibility measures remain expensive. However, in the medium term, the development of these capabilities will enable better risk management and contribute to the stabilization of reserve activation prices.
With more flexible systems, it will be easier to adapt to demand fluctuations, reducing the occurrence of high-volatility periods. This will help balance the grid during times of oversupply or undersupply, creating more stable market conditions.
For more information, contact us at : sales@augmented.energy
