Market Index Definition Statement Review 2024
The Market Index Definition Statement (MIDS) is annually reviewed by the BSCCo on behalf of the BSC Panel, to ensure that the Market Index Price is providing a reasonable reflection of the price of wholesale electricity in the short term market.
About the Review process
Background Information
Parties trade wholesale energy on power exchanges where they can buy and sell power exchange products. The products vary by duration and start time. Approved Modification Proposal P78 introduced the MIP to reflect the price of wholesale electricity in the short term market for Great Britain.
A power exchange can provide data through its role as a Market Index Data Provider (MIDP). As a MIDP they calculate Market Index Data (MID), which consists of half hourly prices and volumes. The calculation process is defined in the MIDS. In particular, the Market Index Definition Statement defines:
- The overall price (Market Index Price or MIP) and volume (Market Index Volume or MIV) calculation process;
- A volume threshold (Individual Liquidity Threshold or ILT), below which the default rules are applied;
- A list of power exchange products that are included in the calculation;
- A list of timebands which group trades according to how long before the Submission Deadline they are made;
- Weightings which reflect the importance of the products and timebands; and
- Principles by which the weightings, products and thresholds are determined.
The Individual Liquidity Threshold (ILT) is a volume threshold that is set to apply default rules. When there is insufficient trading on the power exchange to provide a suitable price. The aim is to avoid the price being set by a single trade (i.e. not setting the ILT too low), and to minimise the number of Settlement Periods where the default rule is applied (i.e. not setting the ILT too high).
The Market Index Volume (MIV) is calculated as the sum of the traded volume across the selected products and timebands, as defined in the MIDS. When the MIV traded in a Half Hour is greater than the ILT, the MIP is the volume weighted average price of the trades. Where the MIV does not meet the ILT, the MIP and MIV default to zero.
The current MIDS (effective from 18 April 2019, following the implementation of BSC Modification P377) sets the products to be included in each Half Hourly price and volume calculation as the Half Hour, One Hour, Two Hour and Four Hour products traded within eight hours of the Submission Deadline. Prior to BSC Modification P377, the products were required to be traded within 12 Hours of Gate Closure.
Weightings are applied to reflect the importance of each product and timeband and are set to ‘1’ or ‘0’, which either completely include or exclude particular trades. The current weightings applied to the different products and timebands used in the calculations are shown in the table below.
Table 1.1
| Table 1.1 | Timeband | ||||||||||||
| Product Name |
Product |
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 |
| Half Hour | H | 1 | 1 | 1 | 1 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| One Hour |
1 |
1 | 1 | 1 | 1 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Two Hour | 2 | 1 | 1 | 1 | 1 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Four Hour | 4 | 1 | 1 | 1 | 1 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Overnight | O | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Peak | P | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Extended Peak | E | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Day Ahead Auction | A | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Use of the MIP
Since the introduction of BSC Modification P305 ‘Electricity Balancing Significant Code Review Developments’, implemented on 5 November 2015, the MIP is used to set the System Price in two scenarios:
- When the Net Imbalance Volume (NIV) is zero, then the System Price will default to the MIP; or
- If all of the actions in the price stack are unpriced then the Replacement Price, and consequently the System Price, will be set by the MIP.
The utilization of the MIP is out of scope in this review.
Graph 1.1: Annual incidences and average of the RPAR Replacement Price
This shows the number of Settlement Periods with a Replacement Price determined based on the weighted average cost of the most expensive 1MWh of unflagged balancing actions, the Replacement Price Average Reference (RPAR) over the past six review periods and the average of the RPAR Replacement Price. Annual review periods are from 1 August to 31 July.
The average RPAR Replacement Price decreased by £46.63/MWh (43%) to £62.32/MWh between the 2022/23 and 2023/24 review periods. There were 1712 Settlement Periods (10% of the 2023/24 reporting period) where the RPAR set the Replacement Price, an increase of 863 Settlement Periods from the previous 2022/23 review period.
Where there are no unflagged balancing actions, the Replacement Price is set at the MIP.
Graph 1.2: Annual incidences and average of the MIP Replacement Price
This shows the average of the MIP when it was used as the Replacement Price, and the number of Settlement Periods where the MIP was used as the Replacement Price, and therefore the System Price. The average MIP decreased by £34.68/MWh (35%) to £63.34MWh.
The number of Settlement Periods where the MIP set the Replacement Price increased by 701 Settlement Periods (which represents 7% of the 2023/24 reporting period), compared to 459 Settlement Periods during the last reporting period.
There have been four instances of the System Price defaulting to the MIP due to a zero NIV since the implementation of BSC Modification P305 (21/12/2021 SP 4, 14/03/2024 SP 21, 08/07/2024 SP 27, 22/09/2024 SP 29). All four instances occurred as there was only one Balancing Services Adjustment Data (BSAD) action in the stack.
The BSAD actions were System Operator (SO) Flagged; balancing action due to transmission constraint, and as there were no additional actions which were Second Stage Unflagged in the stack (Second stage flagged and unflagged actions have prices which may distort the imbalance price market signal), the BSAD actions could not be repriced and therefore the MIP was used.
The System Price calculations and instances when the MIP was used have been analysed to find out why the use of MIP has increased since the 2022/2023 period. The number of actions related to Embedded and Additional Supplier BM Units within the System Price calculation stacks has increased.
From 2022/23 to 2023/24, Embedded BM Units increased 85%, while Additional Supplier BM Units increased 74%. Additional Supplier BM Units have had varied levels of usage over the years but has been steadily increasing month-on-month since October 2022. Usage of Embedded BM Units started to increase in July 2023.
For those two BM Unit types, there was an increase in actions that were Continuous Acceptance Duration Limit (CADL) and SO Flagged.
For both BM Unit Types, the use of CADL Flag had a big increase in January 2024. For Embedded BM Units the use of SO Flag has peaked in October 2023 and has had a mostly steady increase since December 2023.
The usage of SO Flag for Additional Supplier BM Units has fluctuated over the past few years, but there were two clear periods of increases from July-October 2023, and then again in January-April 2024.
Having a higher number of First Stage (SO/CADL) Flagged actions increases the likelihood of an action also being Second Stage Flagged, therefore increasing the likelihood that there isn’t a more expensive First Stage Unflagged balancing action in the stack, which means the MIP is used as the Replacement Price.
The Open Balancing Platform was introduced in December 2023, so this could be why the use of SO and CADL Flags has been increasing since January 2024, in particular for the CADL Flag which had very high increases from then. CADL is another parameter which is reviewed by Elexon. The next CADL review is due at the end of 2024.
Graph 1.3: Count of SO and CADL Flagged Actions for Embedded BMUs per month
Graph 1.3 and Graph 1.4 below show the monthly number of SO and CADL flagged actions for Embedded BM Units and Additional Supplier BM Units.
Graph 1.4: Count of SO and CADL Flagged Actions for Additional Supplier BMUs
Analysis of the Market Index Volume (MIV)
Market Index Volume (MIV) is the total traded volume across the products and timebands included in the calculation. These are the Half Hour, One Hour, Two Hour and Four Hour products traded within eight hours of the Submission Deadline. These products have a weighting of ‘1’ in Table 1.1.
Graph 1.5: Average of Market Index Volume
The MIV shows how much volume was traded in the two power exchanges used to calculate the MIP. A higher MIV indicates a greater volume of traded energy being included in the MIP Calculation.
The average MIV was 1,891MWh in the 2023/24 review period, 479MWh higher than the average MIV in the previous review period, and a similar increase from the 2021/22 review period.
BSC Modification P377 changed the timeband reference in the MIDS from Gate Closure (1 hour before the start of the Settlement Period) to Submission Deadline (up to the start of the Settlement Period). This has meant that trades made after Gate Closure, but before the Submission Deadline, are included in the MIV calculation from April 2019 onwards.
Graph 1.6: Average of Market Index Volume by Settlement period and reporting period
Graph 1.6 displays the average MIV for the last six review periods.
The month with the highest average MIV in the 2023/24 review period was March, when the average MIV was 2,076MWh.
The month with the lowest average MIV was August in the 2023/24 review period, with an average MIV of 1,490MWh. The monthly average MIV for 2023/24 is higher than in the previous five review periods across all months.
By viewing the average MIV by Settlement Period rather than by Month we can see the variation in MIV over a day is much greater than any seasonal variation across a year. Settlement Periods 49 and 50 are shown in the graph but only occur during one clock change day a year.
The Settlement Period with the lowest average MIV (953MWh) is Settlement Period 50, which occurred on the long clock change day (29 October 2023). The shape for 2023/24 is similar to previous review periods, and the increase in the MIV in 2023/24 is simply an increase in the volume of trades, but the trading behaviour remains unchanged.
Graph 1.7: Average Traded Volume by Product
There are four products included in the MIV, the Half Hour, One Hour, Two Hour and Four Hour. Graph 1.7 below shows the average volume traded on each product during the five timebands included in the MIV (see Table 1.1).
Graph 1.8: Average of trades by Settlement period
An average volume of 1,294MWh was traded on the Half Hour product per Settlement Period in 2023/24. Compared to previous years there was more energy traded on the Half Hour product. The One Hour product remains the least traded product that contributes to the MIV.
Analysis of Individual Liquidity Threshold (ILT)
Our analysis indicates that the current ILT is fit for purpose and that there should be no change to the value. Analysis was carried out using the live products and timeband weightings (see Table 1.1).
The ILT is currently set to 25MWh, and triggers a default rule when there is a low liquidity of trades in a Settlement Period. When the MIV is less than the threshold, both the MIP and MIV are defaulted to zero.
The ILT must be set in accordance with the Market Index Definition Statement principles, are:
- Individual Liquidity Thresholds should be set to the same value(s) for every Market Index Data Provider (MIDP);
- Individual Liquidity Thresholds may be set to zero;
- Individual Liquidity Thresholds may be set to different values for different Settlement Periods in the day and may vary by Season or Day Type;
- Individual Liquidity Thresholds should be set based on the analysis of historical data;
- Individual Liquidity Thresholds should be set at a level that minimises the likelihood that the Market Index Price will be set by a single trade; and
- Individual Liquidity Thresholds should be set to ensure that the Market Index Price is defaulted in the minimum number of Settlement Periods, subject to the previous principle.
Currently the ILT for both MIDPs is 25MWh, so principles a), b) and f) are met.
Analysis has been carried out on MIDP data to show the difference an ILT of zero would have for the two MIDPs:
- There were eight Settlement Periods (0.05%) in the current review for EPEX SPOT where the MIP and MIV were defaulted to zero. From these Settlement Periods, three had no traded volumes in the qualifying products. The remaining five Settlement Periods had traded volumes less than the ILT.
- For Nord Pool, 17,503 Settlement Periods (99.9%) had the MIP and MIV defaulted to zero in the 2023/24 review period. For 17,483 of these Settlement Periods, there were no qualifying trades as part of the Market Index Base Data.
Investigation was carried out to see if reducing the ILT would be appropriate, the findings showed reducing the ILT to zero would ensure all qualifying trades are included in the calculation of MIPs, and so reduce the number of occasions when the MIP is defaulted to zero to when there were no qualifying trades at all. However reducing the ILT to zero would also increase the likelihood that the MIP is set on a single trade and so would go against principle e).
In the current review period, zero Settlement Periods for EPEX SPOT had the MIP set based on a single trade. There were three Settlement Periods for Nord Pool that had the MIP set by a single trade. Increasing the ILT increases the chances of the MIP defaulting to zero, which would be contrary to principle f).
Graph 1.9: Settlement Periods where Market Index Volume less than 100MWh
Graph 1.9 below displays the instances for each MIDP where the MIV is greater than zero, but less than 100MWh. The ILT is shown as a red line. Instances where no trades were received are not shown.
There are 376 Settlement Periods where the MIV is greater than zero, but less than 100MWh, for Nord Pool for 368 Settlement Periods (2.09%) and 8 Settlement Periods (0.05%) for EPEX SPOT. This trend is unchanged from the 2022/23 review period.
Given the number of Settlement Periods are below 25 MWh and clustered within the 0-10 MWh range, and to minimise the likelihood that the Market Index Price will be set by a single trade as set out in principle e), we are proposing no change to the current ILT.
Analysis of the Timeband and Product Weightings
The analysis was carried out using the ‘1’ weighted products and timebands specified in the current version of the MIDS, which are shown in Table 1.1. Descriptions of each Timeband each MIDP are capable of providing without system changes is detailed in Table 1.2 below.
Table 1.2
|
Timeband Number |
Timeband |
Description |
|
1 |
1 Hour |
Submission Deadline (for the relevant Settlement Period) to >= -1 hour |
|
2 |
2 Hours |
> -1 hour to >= -2 hours |
|
3 |
3 Hours |
> -2 hours to >= -3 hours |
|
4 |
4 Hours |
> -3 hours to >= -4 hours |
|
5 |
8 Hours |
> -4 hours to >= -8 hours |
|
6 |
12 Hours |
> -8 hours to >= -12 hours |
|
7 |
16 Hours |
> -12 hours to >= -16 hours |
|
8 |
20 Hours |
> -16 hours to >= -20 hours |
|
9 |
24 Hours |
> -20 hours to >= -24 hours |
|
10 |
1 Calendar Day |
> -24 hours to SP 1 on CD-1 |
|
11 |
2 Calendar Days |
SP 1 to SP48 on CD-2 |
|
12 |
3 Calendar Days |
SP 1 to SP48 on CD-3 |
The timeband and product weightings determine which trades are included in the MIP and MIV calculation. Like the ILT, the timeband and product weightings are set in accordance with a set of principles detailed in the MIDS.
The principles are:
- Weightings should be applied to the components that make up the Market Index Price;
- Weightings should not be applied to the Market Index Volume and should not be used in determining whether the traded volume meets the Liquidity Threshold for the half hour;
- Weightings may be applied to reflect how close to real time a trade was made (timeband weighting);
- Weightings may be applied to the product or contract types which qualify in the index calculation (i.e. those which are traded in the short term as defined in the BSC);
- The same weightings must be applied to equivalent qualifying products and timebands across all Market Index Data Providers;
- Weightings may be set to ensure that the Market Index Price is reflective of the price of trades as close as possible to the Submission Deadline;
- Weightings may be set to minimise the flattening effect on the Market Index Price of including traded products used in the methodology that have one price for a time period longer than one Settlement Period;
- Weightings may take values from ‘0’ to ‘1’; and
- Where a weighting is set to ‘0’, the weighting is effectively null, trades in the related product type and timeband will be excluded from the Market Index Volume (and Price) calculation.
A number of the principles – a), b), c), d), e), h) and i) – are already met under the current operation. The remaining principles f) and g) are considered below.
The MIDP calculates the MIP using the weighted products and timebands when the MIV is above the 25MWh ILT. The ‘1’ weighting is currently applied to products H, 1, 2 and 4 in timebands 1 to 5, which results in trades relating to these product and timeband combinations being used to calculate the MIP and MIV.
Graph 1.10: Average percentage of Market Index Volume by Timeband
Graph 1.10 below shows the percentage of traded volume on the ‘1’ weighted products captured in the ‘1’ weighted timebands. As expected, due to the nature of the products:
- The volume traded on the Half Hour Product was highest in timebands 1 and 2;
- The volume traded on the Two Hour Product was mainly captured in timebands 2 and 3; and
- Traded volume on the Four Hour Product was mainly dominating in timeband 5.
This is unchanged from the 2022/23 review period.
It is worth noting that timeband 5 is four hours duration compared to 1 to 4 which are only one hour in duration. The volume traded on the One Hour Product is typically low.
Graph 1.11: Weighted Average price of Market Index Volume by Timeband
Graph 1.11 below shows the weighted average price curve for the ‘1’ weighted products in each timeband. Prices decreased across all products compared to the previous review period by an average of 51%, as shown in the table on the right-hand side.
This decrease is in-line with decreases witnessed in Imbalance Prices.
The average price for the One Hour Product varies more than the other three products. However, there are no trades on this product over the five timebands in the 2023/2024 review period.
Graph 1.12: Average percentage of Market Index Volume by time to Submission Deadline
Graph 1.12 below displays again the percentage of MIV by Product, but with the x-axis set to an hourly scale. The volumes for the longer timeband 5 are averaged out across each of the four hours.
As seen in the previous graph (Graph 1.11), the respective products percentage of MIV peaks when they are closest to the Submission Deadline. The Half Hour Product peaks in the hour before the Submission Deadline, the Two Hour Product peaks two to three hours before the Submission Deadline, and so forth.
Trades made within four hours of a Settlement Period (timebands 1 to 4) make up 88% of the MIV.
Analysis of all Products and Timebands
All of the MIDS Products are detailed in the table below; the products included in the MIV are the Half Hour, One Hour, Two Hour and Four Hour Blocks. The analysis considers all of the products listed below:
| Product Name | Identifier | Duration (Hours) |
| Half Hour | H |
0.5 |
| One Hour |
1 |
1 |
| Two Hour | 2 | 2 |
| Four Hour | 4 | 4 |
| Overnight | O | 8 |
| Peak | P | 12 |
| Extended Peak | E | 16 |
| Block 3 and 4 | S | 8 |
| Off Peak | N | 8 |
| Base Day | B | 24 |
| Day Ahead Auction | A | 1 |
We have reviewed data for the two Market Index Data Providers’ trades up to three Calendar Days ahead of the Submission Deadline, and this period is broken down into 12 timebands. Timebands 1-5 cover trades made up to 8 hours ahead of the Submission Deadline are included in the MIV.
Timebands 6-12 are also considered to confirm the relevance of the current weightings. Note that zero trades were made in timebands 11 and 12 during the review period.
Proportion of Traded Products
This pie chart shows the proportion of traded volume across all timebands by product. The data can be filtered by timeband and by reporting period.
Over the three days analysed, the day-ahead auction product represents 75% of traded volume; this is a decrease from the 2022/23 period of 80%, however this was mainly due to an increase in Half hour traded volumes (17%).
Graph 1.13: Proportion of traded volume by each product
By filtering to show the proportion of traded product within the 8-hour period included in the MIV (timebands 1 to 5) the proportion of traded half hour product volume decreases to 68%. The products currently included in the MIV represent over 99% of the traded volume 8 hours ahead of the Settlement Period.
The remaining traded volume is from block 3 and 4, the overnight, peak, extended peak, and base day products.
There is no Day Ahead product traded during the 8-hour period included in the MIV. However, there is a large volume of the Day Ahead Auction product, traded between timebands 6 and 10.
The Day Ahead auction product is a blind auction where buyers and sellers enter anonymous orders for each hourly period from 23:00 that evening to 23:00 the next day.
The auction market closes at 11:00, after which the orders are matched for each hourly period. The time that the orders are matched gives the trade time used in calculating the timeband for the trade.
Graph 1.4: Cumulative Traded Volume by Timeband
Graph 1.14 below shows the cumulative volume traded on all products in all timebands between 1 August 2023 and 31 July 2024.
In the earlier timebands, a higher percentage of volume is traded on the Half Hour, Two Hour and Four hour products. This suggests that the current products remain suitable as they are traded close to the Submission Deadline (principle f)) and represent a significant percentage of the total volume.
Unlike the other products the Day Ahead auction is not traded in the weighted timebands 1 to 5 that are closer to the Submission Deadline; This product has ‘0’ weighting.
Considering the current market liquidity, which has increased since the last review period, and weighting principle f), the current product weightings remain suitable.
Graph 1.5: Volume traded in each timeband
Graph 1.15 below shows the total volume traded in each timeband, by default the Day Ahead auction product is excluded from the graph.
The largest volumes were traded at timeband 1 (accounting for 35% of the total trade). 64% of traded volume (excluding Product A) is now traded within two hours of a Settlement Period; this remains in line with the previous reporting period (65%).
Without Product A, 99% of the traded volume from the other products occurs within the weighted timebands, which represent 0-8 hours prior to the start of a Settlement Period.