Herd Behavior in Decentralized Balancing Models: A Case Study in Belgium

TL;DR

This paper investigates the impact of increased participation in decentralized balancing in Belgium, showing initial cost benefits but highlighting risks of overshoot with high capacity, and analyzing different pricing formulas.

Contribution

It develops a market simulator for Belgium's 2023 data to analyze implicit balancing effects and compares current and alternative price formulas.

Findings

Initial cost reductions from decentralized balancing

Overshoot risks increase with higher capacity participation

BRPs benefit from implicit balancing despite rising costs

Abstract

In a decentralized balancing model, Balance Responsible Parties (BRPs) are encouraged by the Transmission System Operator (TSO) to deviate from their schedule to help the system restore balance, also referred to as implicit balancing. This could reduce balancing costs for the grid operator and lower the entry barrier for flexible assets compared to explicit balancing services. However, these implicit reactions may overshoot when their total capacity is high, potentially requiring more explicit activations. This study analyses the effect of increased participation in the decentralized balancing model in Belgium. To this end, we develop a market simulator that produces price signals on minute-level and simulate the implicit reactions for battery assets with different risk profiles. Besides the current price formula, we also study two potential candidates for the near-term presented by the TSO. A simulation study is conducted using Belgian market data for the year 2023. The findings indicate that, while having a significant positive effect on the balancing costs at first, the risk of overshoots can outweigh the potential benefits when the total capacity of the implicit reactions becomes too large. Furthermore, even when the balancing costs start to increase for the TSO, BRPs were still found to benefit from implicit balancing.