Gaming Strategies in European Imbalance Settlement Mechanisms

TL;DR

This paper uncovers how European imbalance settlement mechanisms can be exploited by BRPs through gaming strategies due to a mismatch between sub-quarter-hourly dynamics and financial settlement, demonstrated via case studies in Belgium and the Netherlands.

Contribution

It reveals the potential for strategic exploitation of imbalance prices by BRPs caused by the disconnect between imbalance calculation and settlement periods.

Findings

BRPs can exploit imbalance mechanisms by timing their deviations within quarter-hours.

The mismatch between sub-quarter-hourly dynamics and settlement periods enables gaming strategies.

Case studies confirm the theoretical exploitability in Belgium and the Netherlands.

Abstract

Transmission System Operators (TSOs) rely on balancing energy provided by Balancing Service Providers (BSPs) to maintain the supply-demand balance in real time. Balance Responsible Parties (BRPs) can simultaneously deviate from their day-ahead schedules in response to imbalance prices, e.g., by controlling flexible assets such as batteries. According to the European Electricity Balancing Guideline, these imbalance prices should incentivize BRPs performing such implicit or passive balancing to aid the TSO in restoring the energy balance. In this paper, we demonstrate that BRPs are unintentionally offered the opportunity to exploit gaming strategies in European imbalance settlement mechanisms. This is enabled by a disconnect between sub-quarter-hourly dynamics that determine the imbalance prices and the financial settlement on a quarter-hourly basis. We illustrate this behavior in a case study of the imbalance settlement mechanisms in Belgium and the Netherlands. Our results reveal that, in both countries, BRPs can, in theory, exploit the imbalance mechanism by increasing the instantaneous system imbalance during minutes within the quarter-hour that determine the imbalance price while still contributing to restoring the system balance for the rest of the quarter-hour.