System Prices Analysis Report

The System Prices Analysis Report (SPAR) provides a monthly update on price calculations. It is published by the ELEXON Market Operations Team and presented to the Imbalance Settlement Group (ISG) at their monthly meeting.

This report provides data and analysis specific to System Prices and the Balancing Mechanism. It demonstrates the data used to derive the prices. The data is a combination of II and SF Settlement Runs.

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Reporting on February 2020

Published on 9 April 2020 for consideration at ISG229.

 

1. System Prices and length

This report covers the month of March. Where available, data uses the latest Settlement Run (in most cases II or SF). In this report, we distinguish between a long and a short market when analysing System Prices, because the price calculation differs between the two scenarios.

When the market is long, System Prices are based predominantly on the System Operator’s sell actions such as accepted Bids. When the market is short, System Prices are based predominantly on the System Operator’s buy actions. Table 1.1 gives a summary of System Prices for March, with values shown in £/MWh.

1.1 System Price summary by month (£/MWh)

System Length Min Max Median Mean Std.Dev
Long -61.21 40.00 11.50 11.28 9.24
Short 20.48 2,242.31 43.80 52.17 108.17

Source: ELEXON

 

Graph 1.2 shows the distribution of System Prices across Settlement Periods in March 2020 when the market was long and short. 80% of System Prices were between £2.50/MWh and £47.04/MWh regardless of system length. When the system was long, 80% of prices were between £1.95/MWh and £23.75/MWh. When the system was short, 80% of prices were between £39.50/MWh and £53.00/MWh.

System Prices were £100/MWh or more on 16 occasions in March 2020, compared to four times in February. The highest System Price of the month, £2,242.31/MWh, occurred in Settlement Period 37 on 4 March. The price was set by 24 Short Term Operating Reserve (STOR) actions all repriced at the Reserve Scarcity Price (RSVP) of £2,223.17, with a Buy Price Price Adjuster (BPA) of £19.14. The RSVP also set the System Price of £1,708.05 during Settlement Period 38 on 4 March 2020. You can read more about the price spike in ‘ELEXON’s Insight: Highest System Price in 19 years’.

There were 14 Settlement Periods where the System Price was less than £0/MWh in March, with the lowest System Price of -£61.21/MWh occurring in Settlement Period 20 on 16 March. The price was set by three Bids from three different Hydroelectric BM Units, all priced at -£61.21/MWh.

1.2 Frequency of System Prices over last month

 

Graph 1.3 displays the spread of System Prices in March 2020 as a box plot diagram, split between a short and long system. The middle line in each box represents the median System Price of the month, which is £43.80/MWh for short Settlement Periods and £11.50/MWh for long Settlement Periods. Each box edge represents the lower and upper quartiles (25th and 75th percentile respectively), with the Interquartile Range (difference between the Upper and Lower quartiles) being £5.70/MWh for short System Prices and £15.40/MWh for long System Prices.

1.3 System Price spread

Outliers are shown on the graph as circles, and have been defined as being greater than 1.5 times the Interquartile Range (IQR) away from the Upper and Lower quartiles. Under this definition, one long and 53 short System Prices in March were outliers. The one long outlier was below the lower outlier boundary and was priced at -£61.21/MWh, the lowest System Price of the month. The highest System Price of the month, £2,242.31/MWh, was over 51 times the median short System Price for the month.

 

Graph 1.4 shows daily average System Prices over the last month. In March, the average System Price was £11.28/MWh when the system was long and £52.17/MWh when the system was short. The highest daily average price when the system was short was £203.47/MWh, and occurred on 4 March; the system was short for 27 Settlement Periods on this day. The lowest daily average price when the system was long was £2.40/MWh on 16 March; the system was long for 25 Settlement Periods on this day.

1.4 Daily average System Price

 

Graph 1.5 shows the variation of average System Prices across the day. Short prices were highest in Settlement Period 37, with long prices lowest in Settlement Period 20. The lowest average System Price, regardless of market length, occurred during Settlement Period 30, when the System Price was £17.03/MWh.The daily average long Settlement Period System Prices ranged between £4.89/MWh and £24.10/MWh, whilst the daily average short Settlement Period prices varied from £40.87/MWh to £152.11/MWh.

1.5 Average System Price by Settlement Period

 

Graph 1.6 shows system length by day, and Graph 1.7 shows system length by Settlement Period for March. The system was long for 56% of Settlement Periods in March.

1.6 Daily system length by day

 

1.7 System Length by Settlement Period

On 7 and 25 March, the system was long for 42 of 48 Settlement Periods. The short Settlement Periods on these days had an average NIV of 272MWh. The average NIV on these days was -303MWh.

Settlement Period 30 had the highest number of long Settlement Periods, with 81% of them being long this month.

 

2. Parameters

In this section, we consider a number of different parameters on the price. We consider:

  • The impact of Flagging balancing actions;
  • The impact of the Replacement Price;
  • The impact of NIV Tagging;
  • The impact of PAR Tagging;
  • The impact of DMAT and Arbitrage Tagging; and
  • How these mechanisms affect which balancing actions feed into the price.

Flagging

The System Price calculation aims to distinguish between ‘energy’ and ‘system’ balancing actions. Energy balancing actions are those related to the overall energy imbalance on the system (the ‘Net Imbalance Volume’). It is these ‘energy’ balancing actions which the System Price should reflect. System balancing actions relate to non-energy, system management actions (e.g. locational constraints).

Some actions are ‘Flagged’. This means that they have been identified as potentially being ‘system related’, but rather than removing them completely from the price calculation (i.e. Tagging them) they may be re-priced, depending on their position in relation to the rest of the stack (a process called Classification). The System Operator (SO) flags actions when they are taken to resolve a locational constraint on the transmission network (SO-Flagging), or to correct short-term increases or decreases in generation/demand (CADL Flagging).

 

Graph 2.1 shows the volumes of Buy and Sell actions in March 2020 that have been Flagged by the SO as being constraint related. On 11 March, 93% of Sell volume was SO-Flagged.

2.1 Daily volume of SO-Flagged/non-Flagged actions

76% of Sell balancing action volume taken in March had an SO-Flag, compared with 79% the previous month. 44% came from Balancing Service Adjustment Actions (BSAAs), 32% of SO-Flagged Sell actions came from CCGT BMUs and 20% from Wind BMUs. The average initial price (i.e. before any re-pricing) of a SO-Flagged Sell action was -£38.56/MWh.

23% of Buy balancing action volume taken in March had an SO-Flag, compared to 15% in February. 78% of SO-Flagged Buy actions came from CCGT BMUs and 16% from BSAAs. The average initial price of a SO-Flagged Buy action was £51.53/MWh.

Any actions with a total duration of less than the CADL are flagged. Since 1 April 2019, CADL has been set at 10 minutes.

0.4% of Buy actions and 0.2% of Sell actions were CADL Flagged in March. The majority of CADL Flagged Buy actions (84%), and CADL Flagged Sell actions (71%) came from Pumped Storage BMUs, with CCGT BMUs accounting for a further 8% of CADL Flagged Sell Actions.

SO-Flagged and CADL Flagged actions are known as ‘First-Stage Flagged’. First-Stage Flagged actions may become ‘Second-Stage Flagged’ depending on their price in relation to other Unflagged actions. If a First-Stage Flagged balancing action has a more expensive price than the most expensive First-Staged Unflagged balancing action, it becomes Second-Stage Flagged. This means it is considered a system balancing action and becomes unpriced.

 

Graph 2.2 shows First and Second-Stage Flagged action volumes as a proportion of all actions taken on the system. Note these are all the accepted balancing actions – only a proportion of these will feed through to the final price calculation.

In March, an average of 45% of balancing action volume received a First-Stage Flag with an average of 51% of this volume going on to receive a Second-Stage Flag. On the 5 and 6 March, the lowest transmission connected Wind generation of the month occurred and only 13% of balancing action volume was Flagged.

2.2 Flagged Balancing Volumes

 

The Replacement Price

Any Second-Stage Flagged action volumes left in the NIV will be repriced using the Replacement Price. In total, 76% of Sell volume in March was Flagged. Of this Flagged Sell volume, 3% was assigned a Replacement Price.

The Replacement Price is either based on the Replacement Price Average Reference (RPAR currently based on the most expensive 1MWh of Unflagged actions), or if no Unflagged actions remain after NIV Tagging, the Market Index Price (MIP). In March, 89 (6%) Settlement Periods had a Replacement Price based on the RPAR and 63 (4%) Settlement Periods had a Replacement Price based on the MIP. However, the majority of Settlement Periods (90%) did not have a Replacement Price.

 

Graph 2.3 displays the count of Settlement Periods which had a Replacement Price applied, split by the system length and if the Replacement Price was based on RPAR or the MIP. 

2.3 Number of Settlement Periods with Replacement Price by System Length

 

Graph 2.4 displays the average original and Replacement Price of Second-Stage Flagged actions.

2.4 Average Price and Replacement Price by System Length

System Length Original Price Replacement Price
Long 5.25 12.98
Short 60.15 41.31

Source: ELEXON

Sell actions will typically have their prices revised upwards by the Replacement Price for the purposes of calculating the System Price. The average original price of a Second-Stage Flagged repriced Sell action was £5.25/MWh and the average Replacement Price for Sell actions (when the System was long) was £12.98/MWh.

23% (344,508MWh) of Buy volume were Flagged; of this Flagged Buy volume 226MWh had the Replacement Price applied. Buy actions will typically have their prices revised downwards by the Replacement Price. The average original price of a Buy action with the Replacement Price applied was £60.15/MWh, and the average Replacement Price was £41.31/MWh.

If there are no Unflagged actions remaining in the NIV, the Replacement Price will default to the MIP. This occurred in 63 long Settlement Periods in March, compared to 79 long Settlement Periods the previous month (no short Settlement Periods had the MIP applied in either February or March 2020).

NIV and NIV Tagging

The Net Imbalance Volume (NIV) represents the direction of imbalance of the system – i.e. whether the system is long or short overall. Graph 2.5 shows the greatest and average NIV when the system was short, and Graph 2.6 shows the greatest and average NIVs when the system was long. Note short NIVs are depicted as positive volumes and long NIVs are depicted as negative volumes.

2.5 Short system NIV

2.6 Long system NIV

 

In almost all Settlement Periods, the System Operator will need to take balancing actions in both directions (Buys and Sells) to balance the system. However, for the purposes of calculating an System Price there can only be imbalance in one direction (the Net Imbalance). ‘NIV Tagging’ is the process which subtracts the smaller stack of balancing actions from the larger one to determine the Net Imbalance. The price is then derived from these remaining actions.

NIV Tagging has a significant impact in determining which actions feed through to prices. In March, 86% of volume was removed due to NIV tagging. The most expensive actions are NIV Tagged first; hence NIV Tagging has a dampening effect on prices when there are balancing actions in both directions.

The maximum short system NIV of the month (1,269MWh) was seen in Settlement Period 34 on 29 March, where the System Price was £44.00/MWh.

The minimum long system NIV of the month was -1,229MWh, in Settlement Period 16 on 25 March, where the System Price was £1.85/MWh.

 

Graph 2.7 displays a scatter graph of Net Imbalance Volume and System Prices. The dashed lines display a 0MWh NIV and a £0.00/MWh System Price. There were 830 long Settlement Periods in March, 84 of which occurred on 7 and 25 March. The price spike during Settlement Periods 37 and 38 on 4 March had short NIVs of 470MWh and 381MWh respectively; the average short NIV for the month was 267MWh.

2.7 Net Imbalance Volume and System Price

 

PAR Tagging

PAR Tagging is the final step of the System Price calculation. It takes a volume-weighted average of the most expensive 1MWh of actions left in the stack.

PAR Tagging is active in almost all Settlement Periods. The only periods not affected by the new parameter have a NIV of less than 1MWh.

During March, there were two Settlement Periods where PAR Tagging was inactive. The average NIV in these Settlement Periods was 0.15MWh. Settlement Period 2 on 4 March had the lowest absolute NIV (-0.57MWh), and therefore was the most balanced Settlement Period of the month.

DMAT and Arbitrage Tagged Volumes

Some actions are always removed from the price calculation (before NIV Tagging). These are actions which are less than the De Minimis Acceptance Threshold (DMAT) Tagging or Buy actions which are either the same price or lower than the price of Sell actions (Arbitrage Tagging).

On 1 April 2019, DMAT reduced from 1MWh to 0.1MWh, resulting in less actions being DMAT tagged compared to previous months.

 

Graph 2.8 shows the volumes of actions removed due to DMAT Tagging. 0.0012% of total Buy and Sell volume was removed by DMAT Tagging in March, compared to 0.001% the previous month. 53% of the DMAT Tagged volume came from CCGT BMUs, 23% from BSAAs and 8% from other BMUs.

2.8 Daily percentage of DMAT Tagged volume

 

Graph 2.9 shows the volumes of actions that were removed due to Arbitrage Tagging. 0.2% of total Buy and Sell volume was removed by Arbitrage Tagging in March. 47% of the Arbitrage Tagged came from CCGT BMUs, 27% from BSAAs and 16% from Wind BMUs.

2.9 Daily percentage of Arbitrage Tagged volume

In March, the average initial price of an Arbitrage Tagged Buy action was £23.99/MWh, and for a Sell action was £28.41/MWh. The maximum initial price of an Arbitrage Tagged Sell action was £100.00/MWh, and the lowest priced Arbitrage Tagged Buy action was -£100.00/MWh.

On 10 March, the largest volume (605MWh) of actions were Arbitrage Tagged, representing 1% of the daily volume of balancing actions. The average price of an Arbitrage Tagged Buy action was £24.27/MWh, and for a Sell action was £31.47/MWh on this day. 65% of the Abitrage Tagged Volume came from CCGT BMUs, 33% from Wind BMUs and 2% from Gas BMUs.

 

3. Balancing Services

Short Term Operating Reserve (STOR) costs and volumes

This section covers the balancing services that the System Operator (SO) takes outside the Balancing Mechanism that can affect the price.

In addition to Bids and Offers available in the Balancing Mechanism, the SO can enter into contracts with providers of balancing capacity to deliver when called upon. These additional sources of power are referred to as reserve, and most of the reserve that the SO procures is called Short Term Operating Reserve (STOR).

Under STOR contracts, availability payments are made to the balancing service provider in return for capacity being made available to the SO during specific times (STOR Availability Windows). When STOR is called upon, the SO pays for it at a pre-agreed price (its Utilisation Price). Some STOR is dispatched in the Balancing Mechanism (BM STOR) while some is dispatched separately (Non-BM STOR).

 

Graph 3.1 gives STOR volumes that were called upon during the month – split into BM STOR and non-BM STOR. 80% of the total STOR volume utilised in March came from outside of the Balancing Mechanism.

3.1 Daily STOR vs Non-BM STOR volume

 

Graph 3.2 shows the utilisation costs of this capacity. The average Utilisation Price for STOR capacity in March was £53.94/MWh (£118.85/MWh for BM STOR and £37.36/MWh for non-BM STOR).

3.2 Daily STOR vs Non-BM STOR utilisation costs

On 6 March the largest amount was spent on STOR volume for the month (£130,295), of which 71% of the cost was BM STOR and 29% was non-BM STOR. The utilised BM STOR volume on this day was 738MWh, compared to the average of 72MWh across the month.

De-Rated Margin, Loss of Load Probability and the Reserve Scarcity Price

There are times when the Utilisation Prices of STOR plants are uplifted using the Reserve Scarcity Price (RSVP) in order to calculate System Prices. The RSVP is designed to respond to capacity margins, so rises as the system gets tighter (the gap between available and required generation narrows). It is a function of De-Rated Margin (DRM) at Gate Closure, the likelihood that this will be insufficient to meet demand (the Loss of Load Probability, LoLP) and the Value of Lost Load (VoLL, set at £6,000/MWh from 1 November 2018).

 

Graph 3.3 shows the daily minimum and average Gate Closure DRMs for March 2020.

3.3 Minimum and average DRMs

The System Operator has determined a dynamic relationship between each DRM and the LoLP, which will determine the RSVP.

The minimum DRM in March was 0.213GW on 4 March in Settlement Period 37, (compared to 2.509GW in February); the lowest DRM since the implementation of P305 on 5 November 2015. This DRM corresponded to a LoLP of 0.371 and RSVP of £2,223.17/MWh (see Table 3.4). A Buy Price Price Adjuster (BPA) of £19.14 was applied during this Settlement Period.

The RSVP re-prices STOR actions in the System Price calculation if it is higher than the original Utilisation Price. In total there were 92 actions repriced with the RSVP during March 2020; all on 4 March.

3.4 Top 5 LoLPs and RSVPs

Settlement Date Settlement Period DRM (MW) LoLP RSVP (£/MWh) RSVP Used System Price (£/MWh) System Length
04/03/2020 37 213 0.371 2223.17 Yes 2242.31 Short
04/03/2020 38 402 0.281 1688.91 Yes 1708.05 Short
04/03/2020 36 780 0.130 779.37 Yes 144.14 Short
04/03/2020 39 1,043 0.078 470.29 Yes 23.35 Long
04/03/2020 35 1,276 0.037 222.87 Yes 119.14 Short

Source: ELEXON

 

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