Cornwall Insight Ireland’s analysis of the high pricing in the Balancing Market
06 February 2019
On 24th January the balancing market recorded the highest price since ISEM went live, at €3774/MWh, this was more than double the previous high the market had recorded. This resulted from SONI (System Operator in Northern Ireland) issuing an amber alert due to generation losses in NI. The alert was raised following an unplanned outage of a plant in combination with low levels of renewables in NI, exporting on the Moyle interconnector and constraints on the north-south tie-line with Ireland.
The way in which these prices are calculated is complex with multiple factors influencing the price. One concept that is used is flagging, and tagging*. The graph below shows an example of flags and tags applied to NI generation units during the highest priced half hour of 24 January.
The units shown in the graph include two Ballylumford units and four Kilroot units. The Ballylumford units offered high prices and for the first two 5-minute pricing periods they were flagged and so could not set the price.
For the subsequent pricing periods, however, the constraint was lifted. In this case, the marginal energy action price was set at one of the Ballylumford offer prices of €5637/MWh, and it seems that this value set the price, despite the Ballylumford units being tagged out.
Evie Doherty, Senior Consultant at Cornwall Insight Ireland, said:
“It certainly seems that by lifting the constraint, these high offers had the opportunity to set the price. The price for the whole period was then set at €3774/MWh. An investigation is most likely ongoing, and the systems operators are likely to give further information at the next Market Operator User Group.
“These fluctuations in prices, and the complexity and lack of real visibility about how they are set is unsettling for the market. Should the investigation find that the market ran precisely as it is designed to, there is still clearly an issue in times of systems events.
“There are implications for those who have a capacity contract as when balancing prices go high, they can find themselves having to pay out on their Reliability Options (RO). It had been anticipated that these events would be rare, but they have already happened far more frequently than anyone expected over the past four months.
“As more people become aware of these events, the drivers behind them and perceived issues around market design, then they are likely to spur suggestions for changes to the trading and settlement code, making it an interesting space to watch.”
Notes to Editors
* Flagging and tagging = Flags can include System Operator (S) flags and/or Non-Marginal flags (M) indicating that the unit is subject to either a system or a unit constraint and so should not be included in the calculation of the balancing price for that 5-minute period.
The tagging process relates to which bids and offers submitted by market participants are used for calculating the balancing price. If there is a difference in the number of offers and bids, the excess is tagged out, so they do not contribute to the price.
Please note the description of flagging and tagging here is very simplistic and does not reflect the full complexity of the methodology using in calculating the prices in the balancing market.
For more information, please contact: Charlotte Nelson at firstname.lastname@example.org or 01603 542 121