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SEM Chart of the Week

2020

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In the balance: Analysing volatility in the BM

Joe Camish
Joe Camish

In this week’s SEM Chart of the Week, we focus on developments for the Balancing Market (BM) in the SEM.  The BM is where the Transmission System Operator (TSO) can take actions to ensure the transmission system remains within operational parameters as supply and demand changes. Actions here ultimately determine the imbalance settlement price (ISP) for settlement of balancing actions.

Since the start of I-SEM in October 2018, the BM has experienced a high degree of volatility, with entry into the market observed to be a steep learning curve for participants, who have to deal with complex price forming calculations and several balancing pricing disputes.

However, in recent months volatility in the market looks to have eased somewhat, with the first six-months of the BM experiencing an average standard deviation of €77.8/MWh, while the last six months now sits 43% lower at €44.2/MWh.

This can be further expressed by looking at the number of negative ISP events, along with the number of periods the ISP rose above €100/MWh. The number of negative pricing events in a single month has fallen by nearly half (49%) in the past six months to 54 periods on average, with higher than €100/MWh periods dropping 59% from 240 periods on average in the first six months of the BM to just 98.

This trend is being driven by a number of factors.  On the regulatory side, a number of code modifications aimed at tackling the high fluctuations in outturn calculated prices have been passed. Whilst from a commodity market perspective a relatively benign gas market has stabilised input prices for many bidders.

There is also evidence that some generators and suppliers are positioning themselves longer in order to avoid becoming exposed to charges during high price periods, which could have wider wholesale market implications.

We track the BM market and wider wholesale market trends as part of our Irish Energy Market Bulletin service. Please get in touch with Joe Camish for more details.

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