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 16 March 2020 for consideration at ISG228.

1. System Prices and length

This report covers the month of February. 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 February, with values shown in £/MWh.

1.1 System Price summary by month (£/MWh)

System Length Min Max Median Mean Std.Dev
Long -66.25 45.00 12.66 10.84 12.13
Short 4.15 120.00 45.00 46.06 8.99

Source: ELEXON

 

Graph 1.2 shows the distribution of System Prices across Settlement Periods in February 2020 when the market was long and short. 80% of System Prices were between £3.15/MWh and £49.00/MWh regardless of system length. When the system was long, 80% of prices were between £2.12/MWh and £21.30/MWh. When the system was short, 80% of prices were between £40.90/MWh and £51.03/MWh.

System Prices were £100/MWh or more on four occasions in February 2020, compared to 11 times in January. The highest System Price of the month, £120.00/MWh, occurred in Settlement Period 38 on 26 February.

There were 14 Settlement Periods where the System Price was less than £0/MWh in February, with the lowest System Price of -£66.25/MWh occurring in Settlement Period 22 on 1 February. The price was set by two Bids from a Wind BM Unit, both priced at -£66.25/MWh.

1.2 Frequency of System Prices over last month

 

Graph 1.3 displays the spread of System Prices in February 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 £45.00/MWh for short Settlement Periods and £12.66/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 £4.75/MWh for short System Prices and £14.11/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, 16 long and 77 short System Prices in February were outliers. Of the 16 long outliers, eight were less than the lower outlier boundary. The prices of Long outliers ranged from -£66.25/MWh (the lowest System Price of the month) to £45.00/MWh. The highest System Price of the month, £120.00/MWh, was 2.67 times the median short System Price for the month.

 

Graph 1.4 shows daily average System Prices over the last month. In February, the average System Price was £10.84/MWh when the system was long and £46.06/MWh when the system was short, the lowest since the implementation of BSC Modification P305. This is a significant decrease from February 2019 where the average long and short prices were £37.09/MWh and £70.21/MWh respectively. The highest daily average price when the system was short was £62.80/MWh, and occurred on 6 February; the system was short for 23 Settlement Periods on this day. The lowest daily average price when the system was long was -£5.82/MWh on 15 February. The system was long for 10 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 38, with long prices lowest in Settlement Period 12. The lowest average System Price, regardless of market length, occurred during Settlement Period 8, when the System Price was £13.99/MWh.The daily average long Settlement Period System Prices ranged between £0.05/MWh and £21.72/MWh. Average short Settlement Period prices varied from £37.00/MWh to £56.62/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 February. The system was long for 38% of Settlement Periods in February.

1.6 Daily system length by day

 

1.7 System Length by Settlement Period

 

On 10 February, the system was short for 41 of 48 Settlement Periods. The long Settlement Periods on this day had an average NIV of -132MWh. The daily average NIV on this day was 301MWh.

Settlement Period 8 had the highest number of long Settlement Periods, with 72% 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
  • How these mechanisms affect which balancing actions feed into the price.

Flagging

The Imbalance 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 Imbalance 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 February 2020 that have been Flagged by the SO as being constraint related. On 21 February, 98% of Sell volume was SO-Flagged.

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

79% of Sell balancing action volume taken in February had an SO-Flag, compared with 75% the previous month. 41% of SO-Flagged Sell actions came from Wind BMUs, 29% came from Balancing Service Adjustment Actions (BSAAs) and 25% from CCGT BMUs. The average initial price (i.e. before any re-pricing) of a SO-Flagged Sell action was -£53.48/MWh.

15% of Buy balancing action volume taken in February had an SO-Flag, the same as last month. 59% of SO-Flagged Buy actions came from CCGT BMUs and 31% from BSAAs. The average initial price of a SO-Flagged Buy action was £47.15/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 (reduced from 15 minutes).

0.4% of Buy actions and 0.3% of Sell actions were CADL Flagged in February. The majority of CADL Flagged Buy actions (86%), and CADL Flagged Sell actions (69%) came from Pumped Storage BMUs, with CCGT BMUs accounting for a further 9% 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 February, an average of 43% of balancing actions received a First-Stage Flag with an average of 58% of this volume going on to receive a Second-Stage Flag. On the 16 February, 57% of balancing volume was flagged; with 42% of this volume receiving a Second Stage Flag. The 3 February also had 57% of balancing volume flagged; with 76% receiving a Second Stage Flag.

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, 79% of Sell volume in February 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 February, 57 (4%) Settlement Periods had a Replacement Price based on the RPAR and 79 (6%) 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. Graph 2.4 displays the average original and Replacement Price of Second-Stage Flagged actions.

2.3 Number of Settlement Periods with Replacement Price by System Length

 

2.4 Average Price and Replacement Price by System Length

System Length Original Price Replacement Price
Long 3.38 15.27
Short 85.75 79.62

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 £3.38/MWh and the average Replacement Price for Sell actions was £15.27/MWh.

16% of Buy volume were Flagged; of this Flagged Buy volume, none 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 £85.75/MWh, and the average Replacement Price was £79.62/MWh.

If there are no Unflagged actions remaining in the NIV, the Replacement Price will default to the MIP. This occurred in 79 long and no short Settlement Periods in February, compared to 54 long and five short Settlement Periods the previous month.

 

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 Imbalance 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 February, 87% 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 (2,001MWh) was seen in Settlement Period 26 on 9 February, where the System Price was £51.50/MWh.

The minimum long system NIV of the month was -983MWh, in Settlement Period 22 on 1 February, where the lowest System Price of the month (-£66.25/MWh) occurred.

 

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 535 long Settlement Periods in February, 39 of which occurred on 5 February. On 1 February during Settlement Period 22 the lowest System Price (-£66.25/MWh) and the lowest NIV (-983MWh) of the month occurred.

2.7 Net Imbalance Volume and System Price

 

PAR Tagging

PAR Tagging is the final step of the Imbalance Price calculation. It takes a volume-weighted average of the most expensive 1MWh of actions left in the stack. The value of PAR decreased from 50MWh to 1MWh on 1 November 2018 as part of BSC Modification P305.

Following the change of PAR, 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 February, there were two Settlement Periods where PAR Tagging was inactive. The average NIV in these Settlement Periods was -0.08MWh. Settlement Period 35 on 12 February had the lowest absolute NIV (0.23MWh), 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. 0.0010% of total Buy and Sell volume was removed by DMAT Tagging in February, compared to 0.0011% the previous month. 48% of the DMAT Tagged volume came from CCGT BMUs, 13% from BSAAs and 10% from Other (mostly Battery Storage) BMUs. The remaining fuel types accounted for between 0% and 7% of DMAT tagged volume for February 2020.

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 February. 48% of the Arbitrage Tagged came from BSAAs, 35% from CCGT BMUs and 6% from Wind BMUs.

2.9 Daily percentage of Arbitrage Tagged volume

In February, the average initial price of an Arbitrage Tagged Buy action was £21.19/MWh, and for a Sell action was £32.11/MWh. The maximum initial price of an Arbitrage Tagged Sell action was £268.02/MWh, and the lowest priced Arbitrage Tagged Buy action was -£53.64/MWh.

On 27 February, 1.3% of the daily balancing action volume was arbitrage tagged. The average price of an Arbitrage Tagged Buy action was £48.47/MWh, and for a Sell action was £267.76/MWh on this day. 48% of the Abitrage Tagged Volume came from BSAAs and 35% from CCGT 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. 68% of the total STOR volume utilised in February 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 February was £64.40/MWh (£129.02/MWh for BM STOR and £34.52/MWh for non-BM STOR).

3.2 Daily STOR vs Non-BM STOR utilisation costs

On 9 February the highest amount was spent on STOR volume for the month (£126,911), of which 48% of the cost was BM STOR and 52% was non-BM STOR. The utilised BM STOR volume on this day was 459MWh, compared to the average of 74MWh 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 February 2019.

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 February was 2,509MW on 25 February in Settlement Period 38, (compared to 1,446MW in January). This DRM corresponded to a LoLP of 0.0031 and RSVP of £18.85/MWh (see Table 3.4).

The RSVP re-prices STOR actions in the Imbalance Price calculation if it is higher than the original Utilisation Price. In total there were no actions repriced with the RSVP during February.

In Settlement Periods 37 and 38 on the 4 March 2020, the System Price was set by STOR actions repriced at the RSVP. The System Price in these Settlement Periods was £2,242/MWh and £1,708/MWh. This will be covered in next month’s SPAR, or you can read ELEXON’s Insight Article ‘Highest System Price in 19 years’ for more details.

3.4 Top 5 LoLPs and RSVPs

Settlement Date Settlement Period DRM (MW) LoLP RSVP (£/MWh) RSVP Used System Price (£/MWh) System Length
25/02/2020 38 2,509 0.0031416 18.85 No 79.79 Short
13/02/2020 39 2,552 0.0033656 20.19 No 58.29 Short
13/02/2020 38 2,590 0.0031003 18.60 No 64.24 Short
13/02/2020 36 2,694 0.0023932 14.36 No 69.29 Short
25/02/2020 39 2,809 0.0015830 9.50 No 79.79 Short

Source: ELEXON

 

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