Imbalance pricing will change from 1st Nov – What will this mean for the market?

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By Dr. Michelle Vezie-Taylor

30th October 2018

What is PAR and what is happening on 1st November?

From 1st November the next stage of the P305 modification to the Balancing and Settlement Code (BSC) will come into play which will change the way imbalance prices are calculated,

Energy imbalance prices are calculated and charged to a particular party, such as an energy trader, if they are out of balance at the end of a trading period.

These prices become more expensive when the system is more expensive to balance. Prices are calculated as the average of the most expensive volume of actions – the Price Average Reference (PAR) volume.

For example, in November 2015 the PAR volume was set at 500 MWh. Each trading action that National Grid accepts has a particular volume and price. In 2015, at the end of a trading period, the most expensive 500 MWh out of all these actions were averaged to find that trader’s imbalance price.

In 2017, the PAR moved to an average of the top 50 MWh.

From 1st November 2018, as part of the latest stage of the P305 modification to the BSC, the PAR will move to 1 MWh.

 

Why is this happening?

National Grid are making this change in order to better reflect the marginal cost of balancing energy and incentivise traders to stay in balance.

What does this mean for traders?

The upshot of this change is an increase in imbalance price volatility, as the most expensive actions are not being dampened down over a greater number of actions.

Traders will be incentivised to keep in balance where possible and avoid imbalance risk, but this is going to be harder to forecast.

What can energy traders do about it?

With greater risk, comes greater opportunity: to capture more value by successfully responding to system needs.

If you are an energy trader, you can use energy flexibility to ramp up and respond to high value events, and ensure that your own portfolio is in balance, or actively go out of balance to help the system. The quicker you are able to respond, the more effectively you can manage your portfolio in response to these price signals.

In this increasingly volatile imbalance world, technology that provides real-time visibility and control and dispatch of assets is crucial in capturing the best opportunities in the market, and avoiding imbalance risk.

What happens if energy traders don’t have real-time monitoring and control?

Without real-time monitoring and control over your asset portfolio, you simply might have to take on the additional risk, or do the best you can with manual processes. You might be able to make a few phone calls to some assets that you know are available. But if you are trying to turn up a large volume of assets then that is going to be untenable – making calls to 20 different sites with individual conversations for each is inevitably slower and harder to manage effectively. Technology that enables the dispatch of numerous assets at the touch of a button is required to avoid risk and remain competitive in capturing the best value opportunities.

Origami Energy has solutions to connect, control and optimise for any type and number of assets, for any service. If you would like to gain real-time monitoring and control of your assets, and even optimise them against forecast market changes, please get in touch.

Give us a call on 0330 726 0050 to speak to one of our experts. Alternatively you can send us a message and we’ll get back to you.