National Grid Electricity System Operator (ESO) has proposed a change to the way imbalance prices are calculated that it says is necessary to maintain compliance with EU rules.
The guidelines, which came into effect in 2017, require transmission system operators to develop proposals for aligning the calculation of imbalance prices between countries. The latest draft has been submitted to the Board of Regulators at the Association for the Cooperation of Energy Regulators for approval.
In their current form, the proposals require that if a system operator takes no balancing actions in either direction – i.e. the net imbalance volume is zero – then a Value of Avoided Activation (VOAA) should be used to determine the imbalance price. This role is currently fulfilled by the Market Index Price (MIP), which reflects trading on the day-ahead power market.
The EU guidelines stipulate that the VOAA should be based on available prices on the new cross-border exchanges for reserves and frequency response – the Trans-European Replacement Reserves Exchange (TERRE) and the Manually Activated Reserves Initiative (MARI) – or national markets for these services, which include the balancing mechanism. According to National Grid, it means the MIP can no longer be used for this purpose.
The ESO was due to join TERRE by the end of January but was granted a postponement several months beforehand owing to the problems with its implementation by the French system operator RTE. MARI is at an earlier stage of development and is not scheduled to go-live until July 2022.
National Grid has submitted a modification to the Balancing and Settlement Code (BSC) named P410 that would replace the MIP with the VOAA, whilst addressing a series of further issues raised by the harmonisation proposals.
The ESO said that as well as being based on prices in TERRE and MARI, the VOAA must also be reflective the cost of balancing the electricity system and should provide an incentive for BSC parties to be in balance or balance favourably. It said the first two aims are explicitly required by the harmonisation proposals and achieving all three will be “challenging”.
According to the proposal document, Elexon already has access to data from TERRE and bids and offers in the balancing mechanism. However, preliminary analysis by the code administrator suggested the balancing mechanism data would need to be cleansed before it could be used to calculate the VOAA, in particular by removing invalid bids and offers.
Elexon will publish its initial assessment of the modification on 9 July.
The ESO recently proposed another modification to the BSC to prepare for the introduction of MARI.