Reviewing Dutch Imbalance Pricing in a European Balancing Market | Luuk Groot Haar, TenneT

But now we're going to go into the nitty gritty, we're going to get into some technical details, talking about imbalance and flexibility. Now to the first speaker of this session is Luke Groot-Haar of Tenant and he'll talk us through Dutch imbalance prices. So Luke, the floor is yours. Please give him a warm round of applause. Will there be a slide? Well, this is not my slide, that's for sure. Well, I can give a short introduction nonetheless. So I'm going to talk about ImanusPrize. And well, given today I've seen a various, well, range of topics, but about both laborỗ, what notes, sustainable, and prints are price signal that's me thank you very much it is a price signal which well gives an incentive for flexibility to behave in a certain way and well in the Netherlands the imbalance price have has roughly been the same for the last 30 years so that's for stability for really nice investable decisions however we also need to look at a certain instrument from a market efficiency perspective and so if there's reason to change then also you want to well give the opportunity but to the society to have some so such a change and let me introduce myself now I'm the grota I'm working at tenant as a policy advisor in the balancing market design and and well as I said we reviewing the Dutch imbalance price in an increasingly European balancing market and as there are so many different backgrounds I think for the ones who really have knowledge about the imbalance price what I would love from for you to take away in this presentation is that there can well we it is not a given a a imbalance price methodology we have choices that we can be made and and for the people who hear this for the first time the imbalance price I hope after this you have some degree of knowledge where you can say hey I now understand more about mechanics behind it so I hope for everyone it's at least to a certain degree interesting so how does the balancing work in the Netherlands and I say in the Netherlands because balancing between TSOs well there is some difference in Europe that's for sure and so I'm mostly going to talk about Netherlands and then sometimes I'm going to say okay but this is sometimes difference in another country to the Dutch imbalance price methodology how it's always been what the reasoning behind it is and what the current challenges we face and lastly the imbalance price review so how does balancing work in the Netherlands well we have three very important market roles and and it all starts with the BRP the balance responsible party who needs to balance its portfolio we they have consumption they have production and it depends on what kind of BRP you are this so maybe have a large consumer's portfolio some have more flexible portfolio others just want to take position proprietary but nonetheless you need to balance your portfolio so your energy balance at a 15 minute interval needs to be zero megawatt hours should be zero and then obviously they buy everything on the day at mark the future market and intraday but still the weather happens and there you have a mismatch between what you sold and what you buy and what you produce and what you're customers consume and there is a power balance coming into play or at least that's an energy balance but it will be not only for those 50 minutes a stable one everyone uses their appliances differently so there will be every moment instantaneously will be a power imbalance and the TSO in the Netherlands that's tenet we maintain the power balance and that means that the imbalance of the BRP we need to solve that and we're not solving that ourselves we ask market participants to supply us with balancing energy reserves so they bid in their flexibility and well whether when it's needed we activate them and that's also where the BSP comes in so that's the balancing service provider and that role is very important well to give the flexibility of their portfolio to tenant to use to maintain the power balance and that's a well a triangle and that's a well a triangle and that's a well a triangle and that triangle is there in Europe in every country but that feedback loop between the three is always somewhat different or always a lot of times a bit different because in the Netherlands we have a very strong philosophy that well we activate balancing energy via BSPs but we also publish what we do for BRPs to actually manage their portfolio in real time and we call that passive balancing and I really saw a nice post last week on that that Germany is also well going to implement passive balancing because they haven't done that and they were always very very critical on it Belgium is already doing that so that's really nice but that's like the Dutch philosophy and so the role of the BRP is always well there could be some different philosophies there so balancing energy how it comes to be I think I need to speed up already and so how is the frequency contained and rest restored so first let's see this yeah this inertia block is somewhat new there has always been enough inertia because of the synchronous machines which have been turning which is really nice for stability but as they are now and so the stability but as they are off more and more times we are in need sometimes of inertia right now it's still inherently enough in the system but we foresee that it won't be so there we are setting up a market then you have FCR it's frequency containment restoration it makes sure that this is contained so it actually stops and then you have AFR which automatic frequency restoration reserve and it's going to be so it's going to be so it's going to be so it's going to be automatic so it's going to be automatic so it's looking at the imbalance in a country and then automatically the set point is sent and then you have MFR if well everyone a lot of countries are using MFR in a different way but the way tenant used it is if shit hits the fan and there's no not enough AFR on our merit order then we activate MFR as sort of an incident reserve so we would not use especially France is still using this so that is balancing in a nutshell let's move to the Dutch imbalance price methodology so how it works AFR so balancing energy is activated there is an imbalance our controller sees that and there is AFR activated and we are actually looking at a merit order so these are bits from the bit letter which come to tenant from the BSPs and if this is the amount of energy that's needed then this will set the price in the upper direction and in a downward direction it's the other way around so this will set the price in the downward direction it's good to know that AFR automatic frequency restoration reserve is activated every four seconds so that's really well looking at the power balance hence the responsibility for TSO the marginal activation so the activations all the four seconds there is a maximum bit which is hit somewhere in the 50 minutes and that will set the balancing energy price within the Netherlands in the Netherlands we have a very strict methodology that the balancing energy price so the maximum bit that's activated within those 50 minutes is also the imbalance price and that's nice because then you see okay this is needed actually this amount and and and at the same time we publish with a two minute delay need to be set it we publish our activations and also the corresponding price and then the BRPs actually respond to solve their imbalance and that happens and that happens and that happens and that happens and that happens and they are settled at 50 minute ISP so I think what is very important to note here is that the balancing actions actually are done every four seconds but we settle both the price for the BSP and the price of the BRP we settle it at 50 minutes and then there's a feedback loop in the Dutch methodology you and that is the plan Usercy once you say if here really is an individual people are going to you have on this относ with project due to define per megawatt hour that's really nice but if too many assets are doing it at the same time you obviously will do too much the trigger is too big for the problem to solve and then you have an overshoot so that system changes direction so instead of only up regulating so then you will go through zero and you will start down regulating because the assets have been giving too much energy to the system then the system changes direction but then also in the opposite this direction a new price is set so then you have within those 50 minutes you could have a maximum price which is set for 200 euros but in a downward direction if there's a real overshoot that could be a price of minus hundreds so that the surplus actually needs to be paid back against minus hundreds and then we have dual pricing and so the reasoning here is there's a helpful response but if the helpful response turns into a non-helpful disposal response so there's an overshoot there's an opposite direction activation and we trigger dual pricing and therefore it's always been the case that dual pricing is a corrective feedback an overshoot an overshoot is financially less attractive once both activation direction direction occur in the ISP so that's how it's always been and what is I think worth mentioning is that it's also had very a lot of beneficial effects for the Netherlands so the first one is easy market entry with a real-time signal so that if you want to have balancing energy if you want to bit that in that actually is quite a cumbersome well procedure you have to go pre-qualification with your asset and and all the IT infrastructure need to be set up this is like an easy way of just well going into the market and using your flexibility so that's really nice so let's say unlock the central flexibility it's not only the imbalance price I think real-time metering also did a large part there but it does have an a positive effect there I think also what you see is the Netherlands is that we have a very deep AFR merit order list so the balancing energy which is bid in is quite extensive and it's much more expensive than actually the balancing capacity that we buy so every TSO is the obligation to actually make sure that the rest of the reserve is bid in but let's say we have to make sure for one gigawatt in upward direction and one gigawatt in the downward direction our merit order is much bigger than that a lot of the time and that is because in terms of dual pricing actually the risk to be providing a for R you always get the right price and if you do it by passive balancing in case of dual pricing get the wrong price so the most expensive price I would say in the end we have a competitive a for our bit letter it's not really due to I think to the imbalance price but it's much more due to the fact that we have a 15 minute marginal price on both balancing energy and on the imbalance which means that that assets are actually bid in to marginal price and that's they make sure that it's low on the merit order and you have aligned but a responsible party and balancing service provider incentive so the prices for both are the same so in the end offering balancing energy is sort of a hatch for your imbalance in your beer P portfolio that's how you could look at it so together the mechanism unlock flexibility while keeping portfolio responsibility active balancing and price signal and connected and then let's move to what are the market and operational development changes in the balancing system so I think we have this is a very big one the European integration where yeah I think two years ago still we were still managing like only the Dutch imbalance so our bits were only activated for the Dutch imbalance and but right now we are connected to Picasso and that's a platform which actually optimizes well bit activation across Europe if you're connected to the platform and that's really nice because if there's a bit cheaper in well Germany and there is cross-border capacity available then well why not activate that for the sake of the Netherlands right so that's that's I think really nice a a fundamental change is that Dutch balancing energy is not activated solely for the Dutch imbalance anymore but it's also activated could also be activated for the Belgium or the the German imbalance so for the uncongested area imbalance and that's a fundamental difference because well you're not only activating for yourself anymore well the second big change is faster assets so the batteries and other fast response and other fast response technologies also in general wind and solar are much faster than than the conventional obviously they have changed the power versus energy relationship within 50 minutes so where with all these slow assets that well the power imbalance was solved gradually but steadily and it's really nice and also there was a there wasn't too much fluctuation because of the weather right now we have much more fluctuation and it means that the four second power balance and the 50 minute energy balance is not always well correlated anymore and then the decentralized participation and I think more and more smaller assets and it suits with the investment signal right going more to merchant where we actually see that also more it's quite a technical topic I refer to the tenant website if you want to read more about this but we saw oscillations in the imbalance signal and it has a lot of different reasons but also the faster assets play a role but also the overshooting played a role and just the way how imbalances defined we see a lot more regulation state to where it was before the accession of because of 5 to 10 percent it increased also a bit because of the higher rate of passive balancing before picasso but now in picasso actually we see that we have 40 to 50 percent dual pricing which is interesting to say the least because in the end it was always meant as an overshoot mechanism but right now it's not based our activations are not based only on the dutch imbalance anymore so that means that well there could be a very steady imbalance in the netherlands we are long but in abroad the imbalance fluctuates and that means that the net position in the uncongested area goes up and down to zero and if we are the most cheap bits in both directions and there's cross-border capacity that means that we activate in both directions what's happening actually a lot we are actually quite at the bottom of both merit orders up and down and therefore a lot of these dual prices are actually set and that was not what it was designed for in the end whether it's a problem is a second part but it was not what it was designed for and i think the third one it's a less intuitive price signal and so what we see is that the responsibility of a brp is to balance your portfolio and or help the system and in the past if your portfolio was in the same direction as the country which well it's correlated right then you could also say okay you are helping or you could well be making the system worse the system and your portfolio often was quite well aligned however with the larger and congested area the imbalance price price and the national imbalance are in a similar direction so we are long and we are actually up activating upper direction so that would only be if there is a shortage in the broader uncontested area that's about 30 percent of the time and this uncontested area i talk about it like it's quite a trivial thing but it's determined every four seconds and it's depending on well how much cross-border capacity there is actually so it's um let's just say it's a point of attention this less intuitive price signal so the combined effect the feedback loop becomes faster there is more european and less directly observable from a dutch brp perspective and all these reasons for us i forget one more reason and that's that on a european level right now we are there is a well assessment of the regulation so you have the electricity balancing guideline which is going to be assessed the coming years and you have the imbalance settlement harmonization method you can i didn't put it here because you can forget about it but that's also a direction where they might want to go to more harmonization in the future and as we have quite a a well distinct way of determining our imbalance price if you compare it to other countries it's important to think okay do we still stand behind it then i go to my last slide about the imbalance price review so right now we have identified the need for a new uh for at least to to to review our imbalance price methodology and the last quarter i've been busy with engaging with market participants we had one-on-one conversations with uh 17 market parties from big utilities to proprietary traders really insightful uh to get them well up to speed about this story from the get-go but also to get their impact their their assessment actually from the start and we're now at the stage where we want to assess the questions and the central questions you can find here so what is the desired market behavior we would like what are the rationale and assumptions which we have in our imbalance price methodology and do we still stand behind it given the changes that has happened and the topics we want to assess is okay the pricing basis so right now we use marginal pricing per isp but actually the balancing energy price on the platforms are done on a four second price basis and also belgium and germany are for example using four second prices to determine balancing energy price and imbalance price the settlement structure single versus dual pricing only us in spain are using dual pricing the rest is using single pricing it's at least worth going well scratching behind our ears price consistency what is the relationship between the imbalance and balancing energy prices and and what is the relevant system reference system we want that's the dutch imbalance or the uncongested area an objective is determine whether the methodology still supports portfolio balance and system support while reflecting the imbalance situation and the real-time value of energy and that's a very well dense line and if you want well to get more information about it ask me in the break or ask a question now i would say that was it okay thank you very much indeed luke thank you thank you yeah yeah that was a an excellent overview of of of imbalance pricing and and the dutch system um very very interesting indeed i i'd like to um my first question really is about picasso yes uh how how do you think balancing risk is higher since uh or lower since the start of picasso um especially considering the the explosion the explosive growth of uh dual imbalance prices so i think balancing in general so what it does is more efficient uh activation so what you see is that the the if you have to the the the how do you say it the fedeling uh distribution of imbalance price i think you will see that the middle has become much narrower but if you actually are decoupled from picasso you are in a more broader range so the imbalance price could be more extreme and be for and that yeah changes the the the situation slightly so that's i think um is there more or less risk it depends who you ask i think large utilities and dual pricing are not too worried about it there's all kinds of mechanisms where they have portfolio advantages but for the smaller like flex operators it's a could be a problem uh yes but there yeah so i think i also said there is so much nuance in this topic that it's depends who you ask it depends who you ask yes exactly it depends on what your situation is in the market any questions from the floor yes at the back here um just please please please okay please we use the microphone axel very quick one what is the timeline behind this so when do you expect to land on the conclusion with this that's a very good question um so i think what what's always also been noticed is that there are a lot of well let's say conflicting interests right so if you have a an effectable asset you would like more volatility if you have if you have if you have a a consumer portfolio you have less flexibility so it's quite a sensitive topic um in the end what i really would like is to uh well have at least a a fundamental idea of how we want to tackle these at least to to what what are the impacts of all these different choices let's say at the beginning of next year so 2027 um and i i need to be cautious here i'm always optimistic i have to say that because that if i talk to tenant colleagues sometimes they don't agree with my optimism i hope that we have reached a conclusion uh somewhere in q2 next year but it could also be that we have a conclusion for a small part and that the rest is still hanging but i aim for uh in q2 that we actually well if we assess that we need for example a new methodology or whatever that at least the first well methodology proposals will be published then yeah i have another question uh can you shed your light of view on the activation rates and if there is a difference in the the rate that you can ramp per minute for a brp or a bsp and do you expect maybe also if netherlands is now talking about it germany would you expect an expansion to other countries as well in general tso's are quite conservative so it takes a lot of time to if you don't do it yet to do it so i don't know whether other i know that austria for example said we're not going to do it but germany is going to do it so who knows austria is going to follow there there are like different reasonings why you want passive balancing or not right so it's in the nordics you don't want it because they are they don't have such a nice grid as we have so they want to have more or that's at least the argumentation they use um sorry what was the start of your question the ramp rate limit so as of now i mean we have communicated that there could be a ramp rate limit of 20 for brps yeah how are we going to to to monitor that that's the second part uh and for brbs piece to be honest well that we have i think now 200 percent ramp rate which you can bid in um so yeah in the end it's all especially for the brb ramping it's also it needs to be aligned with what goes out and what goes up so it's really hard to actually put a ramp rate on it although i know that acm for example has said that there needs to be a a ramp rate restriction and also well we are discussing it at the moment look i i want to ask you this question since we were so lucky to have you on the stage here um it's about passive balancing germany has announced that it will uh open the market to passive balancing passive balancing like the netherlands what what lessons would you share with your your german tso's i mean you have a tso in and your tenant obviously is but it's based in germany but the other ones as well there there needs to be a break so so there needs to be a certain way in which brps know that their actions actually push it somewhere else and whether that's dual pricing or actually a single pricing which is just very transparent so you publish it quite close to real time as belgium is doing for example i'm not sure whether there is a big difference between the two maybe even the the volume weighted average pricing gives a more better reflection of the energy in that sense um so you need to have a break and the market should be aware because i think brps want to earn money but in that sense they also want to know when their action is not making money anymore so be transparent about it and have a break in your system good advice thank you once again luke um please