Product update: Dutch balancing markets

Montel EnAppSys, part of our Analytics offering, has launched a revamped Dutch Balancing Market Analysis tool. This enhanced functionality provides invaluable insights into the causes of dual imbalance prices and passive balancing dynamics, empowering energy market participants with the knowledge needed to navigate this landscape effectively. 

Key features:

Granular Price Sensitivities: Detailed charts offer a closer look at balancing market price sensitivities throughout the day, updated constantly.

Live Data: Access to real-time data in minutely granularity enabling timely decision-making. 

Calculation Capabilities: Live calculations of balancing price, balance delta coefficient, and estimated passive balancing actions provide deeper analytical capabilities, for use in real-time or historical analysis.

This product update comes with no additional cost for existing Montel EnAppSys customers, providing added value and support in navigating balancing risks.

The challenges posed by balancing markets

In the complex interplay of supply and demand within energy, balancing markets play an increasingly important role. Managing balancing risk therefore is a key activity for many participants, however it can also be an opportunity in certain markets.

Imbalances often arise due to mismatches between forecasted and actual energy consumption or production, leading to challenges in maintaining grid stability and ensuring efficient market operations. At the heart of imbalances lie the complexities of market dynamics. Traditional balancing mechanisms, while effective to a certain extent, may struggle to address rapid fluctuations in energy supply and demand, especially in the context of renewable energy integration and decentralised generation. Some of the challenges posed by the new energy market landscape include:

Forecasting Uncertainty

Traditional balancing mechanisms rely heavily on accurate forecasts of energy supply and demand. However, forecasting energy generation from renewable sources like wind and solar can be inherently uncertain due to variability in weather patterns. As a result, unexpected deviations between forecasted and actual generation can occur, leading to imbalances that are difficult to address in real-time. 

Temporal Misalignment

Balancing mechanisms typically operate on relatively short time intervals, such as hourly or fifteen-minute schedules. However, imbalances can occur over different time horizons, such as intra-hourly fluctuations or longer-term shifts in demand patterns.

Market Participation Barriers

Participation in traditional balancing markets often entails significant administrative and operational requirements, which can deter smaller market participants or decentralised energy resources from actively participating. This can limit the effectiveness of traditional mechanisms in capturing and addressing imbalances across the entire market, particularly as the energy landscape becomes more decentralised.

Limited Flexibility

Traditional balancing mechanisms may have limited flexibility in responding to rapid changes in energy supply and demand, especially during periods of high volatility or unexpected events. This lack of agility can hinder the ability to mitigate imbalances quickly and efficiently, leading to prolonged periods of dual imbalance prices. 
 
As a result, market parties resort to passive balancing actions, adjusting their consumption or production patterns independently of official mechanisms to align with prevailing market conditions. This decentralised approach introduces additional layers of complexity to the market, necessitating deeper analytical insights to understand their drivers and implications.

The Dutch market is a good example of this, where the balancing markets recognize ‘causers’ of imbalance and ‘helpers’ assisting the grid operator to restore the balance. Generally the causers are punished for causing an imbalance in the system and face higher balancing prices, motivating them to reduce their impact. Helpers on the other hand, respond by dispatching assets to reduce the imbalance in the grid.

Allowing market parties to assist in balancing the grid based on price incentives significantly reduces the balancing costs for the grid operator compared to a market that doesn't involve market participants in balancing.

However, if many market parties respond to the price incentives, this may cause an ‘overshoot’. In case of an overshoot, the balancing position changes direction very quickly. In the Dutch balancing mechanism, there is provision, that when this happens, the balancing price splits in two distinct prices. Both prices then include an incentive to reduce individual imbalances of market participants, who are then all seen as ‘causers’ of imbalance.

 Dual imbalance prices are an additional risk for market participants. They refer to the simultaneous existence of two distinct imbalance prices, which is unique to the Dutch balancing market. As the balancing market is run on minutely granularity (balanced every minute) and is seen as an attractive market for intraday optimisation, the volatility can be extreme.

This volatility can cause dual pricing events, which can lead to thousands of euros of cost as market participants move from helpers to causers within the space of a single 15-minute settlement period, due to the marginal price regime also used in this specific balancing market. This introduces massive challenges to market participants, who will have to analyse in real-time on a minute-by-minute basis, the risk of adverse balancing market circumstances.