The dispatch system is a key part of the regulatory setup as it defines how producers are
“ordered to produce”. The choice to be made is between central dispatching and self-dispatching modes.
In the self-dispatching system, the market signals in terms of prices on the day-ahead market, intraday market and ancillary services market give both the BRPs and their
customers incentives to utilize their flexibility. When ancillary services are actually needed – that is when an imbalance is detected - the TSO get an active role, and still they only order activation based on bids from the BRPs not looking at what BRP and what plant is behind the bid. As such, in the self-dispatching system, the TSO only reacts to detected but not predicted imbalances.
8 See link for example of master data: http://osp.energinet.dk/SiteCollectionDocuments/Engelske%20 dokumenter/El/DataHub%20-%20Regulation%20I.pdf
Definition
Self-dispatching model’ is a scheduling and dispatching model where the
production schedules and consumption schedules as well as dispatching
of power generating facilities and demand facilities are determined by the scheduling agents (BRP) of those facilities.
In a ’central dispatch system’, the role of the scheduling agent (BRP) is carried out by the TSO.
Part II Europe
121Figure 40: Different national balancing models9
Figure 40 shows different market design choices in the USA and some European countries.
The further to the right in the figure the more responsibility is left to (private sector) BRPs and the further to the left, the more responsibility to the (most often state-owned) TSOs. When the responsibility and the initiative are left to the BRPs it is important to have an imbalance settlement system that gives the adequate incentives. Therefore this issue elaborated in the next chapters.
In the Nordic countries, BRPs are responsible for generating and sending production and consumption schedules to producers and consumers based on day-ahead market signals from Nord Pool Spot and regulating power signals from the TSOs. Also, the BRPs settle their imbalances with the TSOs making it a decentralized balancing system. The TSOs activate regulating power only when imbalances are detected. Thus, the proactive minimization of imbalances is left to the BRPs who can send new schedules to their portfolio of flexible producers or they can use the intraday market to minimize expected imbalances by trading with counterparties.
As illustrated in figure 40 this implies an increased responsibility of the BRPs in balancing the system. As the BRPs are private companies their overall purpose is profit maximization.
Thus, the imbalance settlement system must be designed to give the BRPs financial incentives to act in accordance with the interests of the overall power system.
As the BRPs have more responsibility and financial incentives to act flexibly it is interesting to investigate how these incentives work, especially the link between risks and opportunities.
The imbalance settlement system is one of the most important factors in shaping BRPs’
behaviour.
However, there are several ways to design the imbalance settlement system. In the Nordic countries cross-border marginal pricing and a combination of both one-price and two-price balance settlement systems has been chosen.
9 ENTSO-E has made this illustration as a part of a roadmap for French electricity balancing, that is without particular focus on Nordic countries. The Nordics would be placed in the right side of the illustration. Source:
https://docstore.entsoe.eu/Documents/MC%20documents/balancing_ancillary/2017-12-07/20171207_French_
Roadmap_on_Electricity_Balancing_3.pdf
101 Figure 2-1: Different national balancing models175
Figure 2-1 shows different market design choices in the USA and some European countries. The further to the right in the figure the more responsibility is left to (private sector) BRPs and the further to the left, the more responsibility to the (most often state-owned) TSOs. When the responsibility and the initiative are left to the BRPs it is important to have an imbalance settlement system that gives the adequate incentives. Therefore this issue elaborated in the next chapters.
In the Nordic countries, BRPs are responsible for generating and sending production and consumption schedules to producers and consumers based on day-ahead market signals from Nord Pool Spot and regulating power signals from the TSOs. Also, the BRPs settle their imbalances with the TSOs making it a decentralized balancing system. The TSOs activate regulating power only when imbalances are detected.
Thus, the proactive minimization of imbalances is left to the BRPs who can send new schedules to their portfolio of flexible producers or they can use the intraday market to minimize expected imbalances by trading with counterparties.
As illustrated in Figure 2-1 this implies an increased responsibility of the BRPs in balancing the system. As the BRPs are private companies their overall purpose is profit maximization. Thus, the imbalance settlement system must be designed to give the BRPs financial incentives to act in accordance with the interests of the overall power system.
As the BRPs have more responsibility and financial incentives to act flexibly it is interesting to investigate how these incentives work, especially the link between risks and opportunities. The imbalance settlement system is one of the most important factors in shaping BRPs' behaviour.
175ENTSO-E has made this illustration as a part of a roadmap for French electricity balancing, that is without particular focus on Nordic countries. The Nordics would be placed in the right side of the illustration.
Source:https://docstore.entsoe.eu/Documents/MC%20documents/balancing_ancillary/2017-12-07/20171207_French_Roadmap_on_Electricity_Balancing_3.pdf
122
One-price and two-price balance settlement systems
10After the operational hour, deviations between the volumes sold by BRP for production (BRPP ) and volumes bought by BRP for consumption (BRPC) are measured. These deviations (known as imbalances) are settled with the TSO on a monthly basis.
For BRPC these imbalances are settled under a ‘one-price’ settlement system. It is referred to as a one price system because regardless of whether a BRPC contributes to an overall system imbalance, or aids in reducing a system imbalance, the regulating power price for that hour is the settlement price for the imbalance. As a result, it is actually possible for BRPC to profit from their imbalances. For example in an hour where the BRPC uses more electricity than planned, but there was an excess of electricity in the system as a whole (thus resulting in down regulating power being activated) the settlement price used to pay for the excess electricity will be less than the spot price. Table 11 below depicts the price used and direction of payment under the one-price system for BRPC.
Table 11: Settlement prices for the imbalance for a BRPC under a one-price system. *Indicates situations where the BRPC can profit from imbalances. (Adapted from Energinet.dk, 2010)
The intuition behind the profits is, that if the BRPC has bought too power much and the system is in need of power, then the BRPC sell the excess power at a high price because power is scarce.
Almost the same applies if the BRPC has bought little power and the system has too much power, then the BRPC buys the deficit at a low price because there is excess power.
BRPP, on the other hand, is settled under a two-price settlement system, thus not allowing them to profit from their imbalances. If a BRPP imbalance contributes to the system
imbalance (a BRPP , for example, produces more electricity than planned in an hour where the system had an excess of electricity), then the settlement price is the regulating power price (in this example a price lower than the day-ahead market price). If however, the BRPP imbalance is in the opposite direction of the system imbalance, then the day-ahead market price is used as the settlement price. Table 12 depicts the settlement situation for a BRPP.
10 This chapter is an slightly edited version of a chapter in: http://www.ea-energianalyse.dk/reports/1027_the_
existing_nordic_regulating_power_market.pdf
102 However, there are several ways to design the imbalance settlement system. In the Nordic countries cross-border marginal pricing and a combination of both one-price and two-price balance settlement systems has been chosen.
One-price and two-price balance settlement systems176
After the operational hour, deviations between the volumes sold by BRP for production (BRPP ) and volumes bought by BRP for consumption (BRPC) are measured. These deviations (known as imbalances) are settled with the TSO on a monthly basis.
For BRPC these imbalances are settled under a ‘one-price’ settlement system. It is referred to as a one price system because regardless of whether a BRPC contributes to an overall system imbalance, or aids in reducing a system imbalance, the regulating power price for that hour is the settlement price for the imbalance. As a result, it is actually possible for BRPC to profit from their imbalances. For example in an hour where the BRPC uses more electricity than planned, but there was an excess of electricity in the system as a whole (thus resulting in down regulating power being activated) the settlement price used to pay for the excess electricity will be less than the spot price. Table Table 2-1 below depicts the price used and direction of payment under the one-price system for BRPC.
Electricity System Situation BRPC bought too little BRPC bought too much
Table 2-1: Settlement prices for the imbalance for a BRPC under a one-price system.
*
Indicates situations where the BRPC can profit from imbalances. (Adapted from Energinet.dk, 2010)The intuition behind the profits is, that if the BRPC has bought too power much and the system is in need of power, then the BRPC sell the excess power at a high price because power is scarce.
Almost the same applies if the BRPC has bought little power and the system has too much power, then the BRPC buys the deficit at a low price because there is excess power.
BRPP, on the other hand, is settled under a two-price settlement system, thus not allowing them to profit from their imbalances. If a BRPP imbalance contributes to the system imbalance (a BRPP , for example, produces more electricity than planned in an hour where the system had an excess of electricity), then the settlement price is the regulating power price (in this example a price lower than the day-ahead market price). If however, the BRPP imbalance is in the opposite direction of the system imbalance, then
176 This chapter is an slightly edited version of a chapter in:
http://www.ea-energianalyse.dk/reports/1027_the_existing_nordic_regulating_power_market.pdf
103 the day-ahead market price is used as the settlement price. Table 3 below depicts the settlement
situation for a BRPP.
Electricity System Situation BRPP sold too little BRPP sold too much Up-regulation (not enough
Table 2-2: Settlement prices for the imbalance for a Production Balance Responsible under a two-price system.
No matter if the imbalance settlement system is one-price or two-price, the imbalances are settled for the net imbalance of the BRPs portfolio of consumption and production, respectively. Therefore it is important for the BRPs to have large portfolios of production or consumption as the imbalances of the individual customers have a tendency to – to some degree – net out. This happens when some customers' imbalances in one direction are partly offset by other customers' imbalance in the other direction. This tendency is stronger the more customers and the more diverse customers the BRP has. Therefore, large BRPs have, when it comes to this cost component, an advantage over small BRPs.
Linking back to Figure 2-1 the one-price settlement system indicates more responsibility to the BRPs than the one-price system as the BRPs are given stronger incentives to take positions that reduces system imbalances. In the two-price system, there is less incentive to do so because in that system a BRP only have an incentive to the BRPs own imbalance. Some would say that the one-price model gives the BRPs incentive to speculate and create imbalances and that is also true. If that is a problem, all comes down to if BRPs are believed to have competencies to do it profitably as a profitable speculation in normal circumstances helps the system.
The concern of the TSO is to always have enough available regulating power to cover the net imbalances of all the BRPs. Thus, they worry about both the volume of available reserves and the BRPs net imbalances. The BRPs, on the other hand, are concerned about maximizing profits and minimizing risks.
If there is a scarcity of reasonably priced regulating bids, imbalances tend to become more expensive and profits on imbalances helping the system increases. If, for instance, a BRP suspects scarcity of upregulating bids, then the BRP has a tendency to buy more power in the day-ahead market and intraday market . If there actually is a scarcity of upregulation bids, this maneuver helps the TSO because it reduces the need for upregulating bids. Therefore, if the BRP has the information and competencies to foresee the situation on the market for regulating power, then the behaviour of the BRP helps the TSO.
But if the BRP is wrong, and the situation is the opposite from expected, then the BRPs maneuvers increase net imbalance in the wrong direction making a potential scarcity of regulating power worse.
Therefore, if policymakers trust the BRPs ability to build competent organizations, then they could very well choose the one-price-model.
Part II Europe
123One-price and two-price balance settlement systems
10After the operational hour, deviations between the volumes sold by BRP for production (BRPP ) and volumes bought by BRP for consumption (BRPC) are measured. These deviations (known as imbalances) are settled with the TSO on a monthly basis.
For BRPC these imbalances are settled under a ‘one-price’ settlement system. It is referred to as a one price system because regardless of whether a BRPC contributes to an overall system imbalance, or aids in reducing a system imbalance, the regulating power price for that hour is the settlement price for the imbalance. As a result, it is actually possible for BRPC to profit from their imbalances. For example in an hour where the BRPC uses more electricity than planned, but there was an excess of electricity in the system as a whole (thus resulting in down regulating power being activated) the settlement price used to pay for the excess electricity will be less than the spot price. Table 11 below depicts the price used and direction of payment under the one-price system for BRPC.
Table 11: Settlement prices for the imbalance for a BRPC under a one-price system. *Indicates situations where the BRPC can profit from imbalances. (Adapted from Energinet.dk, 2010)
The intuition behind the profits is, that if the BRPC has bought too power much and the system is in need of power, then the BRPC sell the excess power at a high price because power is scarce.
Almost the same applies if the BRPC has bought little power and the system has too much power, then the BRPC buys the deficit at a low price because there is excess power.
BRPP, on the other hand, is settled under a two-price settlement system, thus not allowing them to profit from their imbalances. If a BRPP imbalance contributes to the system
imbalance (a BRPP , for example, produces more electricity than planned in an hour where the system had an excess of electricity), then the settlement price is the regulating power price (in this example a price lower than the day-ahead market price). If however, the BRPP imbalance is in the opposite direction of the system imbalance, then the day-ahead market price is used as the settlement price. Table 12 depicts the settlement situation for a BRPP.
10 This chapter is an slightly edited version of a chapter in: http://www.ea-energianalyse.dk/reports/1027_the_
existing_nordic_regulating_power_market.pdf
102 However, there are several ways to design the imbalance settlement system. In the Nordic countries cross-border marginal pricing and a combination of both one-price and two-price balance settlement systems has been chosen.
One-price and two-price balance settlement systems176
After the operational hour, deviations between the volumes sold by BRP for production (BRPP ) and volumes bought by BRP for consumption (BRPC) are measured. These deviations (known as imbalances) are settled with the TSO on a monthly basis.
For BRPC these imbalances are settled under a ‘one-price’ settlement system. It is referred to as a one price system because regardless of whether a BRPC contributes to an overall system imbalance, or aids in reducing a system imbalance, the regulating power price for that hour is the settlement price for the imbalance. As a result, it is actually possible for BRPC to profit from their imbalances. For example in an hour where the BRPC uses more electricity than planned, but there was an excess of electricity in the system as a whole (thus resulting in down regulating power being activated) the settlement price used to pay for the excess electricity will be less than the spot price. Table Table 2-1 below depicts the price used and direction of payment under the one-price system for BRPC.
Electricity System Situation BRPC bought too little BRPC bought too much
Table 2-1: Settlement prices for the imbalance for a BRPC under a one-price system.
*
Indicates situations where the BRPC can profit from imbalances. (Adapted from Energinet.dk, 2010)The intuition behind the profits is, that if the BRPC has bought too power much and the system is in need of power, then the BRPC sell the excess power at a high price because power is scarce.
Almost the same applies if the BRPC has bought little power and the system has too much power, then the BRPC buys the deficit at a low price because there is excess power.
BRPP, on the other hand, is settled under a two-price settlement system, thus not allowing them to profit from their imbalances. If a BRPP imbalance contributes to the system imbalance (a BRPP , for example, produces more electricity than planned in an hour where the system had an excess of electricity), then the settlement price is the regulating power price (in this example a price lower than the day-ahead market price). If however, the BRPP imbalance is in the opposite direction of the system imbalance, then
176 This chapter is an slightly edited version of a chapter in:
http://www.ea-energianalyse.dk/reports/1027_the_existing_nordic_regulating_power_market.pdf
103 the day-ahead market price is used as the settlement price. Table 3 below depicts the settlement
situation for a BRPP.
Electricity System Situation BRPP sold too little BRPP sold too much Up-regulation (not enough
Table 2-2: Settlement prices for the imbalance for a Production Balance Responsible under a two-price system.
No matter if the imbalance settlement system is one-price or two-price, the imbalances are settled for the net imbalance of the BRPs portfolio of consumption and production, respectively. Therefore it is important for the BRPs to have large portfolios of production or consumption as the imbalances of the individual customers have a tendency to – to some degree – net out. This happens when some customers' imbalances in one direction are partly offset by other customers' imbalance in the other direction. This tendency is stronger the more customers and the more diverse customers the BRP has. Therefore, large
No matter if the imbalance settlement system is one-price or two-price, the imbalances are settled for the net imbalance of the BRPs portfolio of consumption and production, respectively. Therefore it is important for the BRPs to have large portfolios of production or consumption as the imbalances of the individual customers have a tendency to – to some degree – net out. This happens when some customers' imbalances in one direction are partly offset by other customers' imbalance in the other direction. This tendency is stronger the more customers and the more diverse customers the BRP has. Therefore, large