A Double Pricing and Penalties “Separated” Imbalance Settlement Mechanism to Incentive Self Balancing of Market Parties

Increasing penetrations of variable renewable energy sources increase the usage and costs of reserves due to their stochastic nature. As Balance Responsible Parties all market participants pay the balancing costs of their imbalances according to the imbalance settlement mechanism of each market zone. The European balancing markets and the imbalance settlement mechanisms still have different rules across Europe, but normally, the prices of upward and downward regulation are higher and lower than spot prices, respectively, originating penalties. Against this background, this work presents an alternative “Separated” imbalance settlement mechanism that consists of unbalanced parties paying/receiving directly the costs/revenues of the balancing markets needed to balance them. In this mechanism, the net costs/revenues of Transmission System Operators with energy balancing mechanisms are zero. Furthermore, by separating the payment of penalties between unbalanced directions, this mechanism also incentive unbalanced parties to self-control their dispatch, mitigating part of their deviations. Two case studies have been presented to test the application of this mechanism in Portugal and Spain, comparing its outputs with those of the mechanisms in place in these countries during 2019. Outputs from the studies prove the benefit of using this mechanism to reduce penalties, mainly in the case of active market players that can partly control their dispatch.