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.
Articles of Interest
Reporting on August 2020
Published on 22 September 2020 for consideration at ISG2324.
1. System Prices and length
This report covers the month of August. 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 August, with values shown in £/MWh.
1.1 System Price summary by month (£/MWh)
Graph 1.2 shows the distribution of System Prices across Settlement Periods in August 2020 when the market was long and short. 95% of System Prices were between £0.00/MWh and £60.00/MWh regardless of system length. When the system was long, 88% of prices were between £0.00/MWh and £30.00/MWh. When the system was short, 89% of prices were between £30.00/MWh and £60.00/MWh.
System Prices did not exceed £100/MWh in August 2020, the fifth consecutive month where prices have remained below £100/MWh. The highest System Price of the month, £97.75/MWh, occurred in Settlement Period 41 on 12 August. The price was set by one balancing action from a Coal fuelled BMU priced at £97.75/MWh.
There were no negative System Prices in August 2020, compared to 15 in July. This is the first time there have been no negative prices since July 2019. The lowest System Price, £0.00/MWh, occurred in five Settlement Periods during August. Two of these Settlement Periods occurred during peak times.
1.2 Frequency of System Prices over last month
Graph 1.3 displays the spread of System Prices in August 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 £45.50/MWh for short Settlement Periods and £17.00/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 £9.20/MWh for short System Prices and £15.14/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, there were no long outliers but 79 short System Prices in August were outliers. The short outliers ranged from £6.24/MWh to the highest System Price of the month, £97.75/MWh.
Graph 1.4 shows daily average System Prices over the last month. In August, the average System Price was £17.83/MWh when the system was long and £47.35/MWh when the system was short. The highest daily average price when the system was short was £62.82/MWh, and occurred on 17 August; the system was short for 28 Settlement Periods on this day. The lowest daily average price when the system was long was £4.20/MWh on 5 August. The system was long for 21 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 42, with long prices lowest in Settlement Period 13.49. The lowest average System Price, regardless of market length, occurred during Settlement Period 15, when the System Price was £26.91/MWh. The daily average long Settlement Period System Prices ranged between £13.49/MWh and £24.84/MWh. Average short Settlement Period prices varied from £38.56/MWh to £57.73/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 August. The system was long for 40% of Settlement Periods in August.
1.6 Daily system length by day
1.7 System Length by Settlement Period
On 10 August, the system was short for 42 of 48 Settlement Periods. The long Settlement Periods on this day had an average NIV of -126MWh. The daily average NIV on this day was 272MWh.
Settlement Periods 1, 6 and 46 had the highest number of long Settlement Periods, with 71% of them being long this month.
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.
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 August 2020 that have been Flagged by the SO as being constraint related. On 9 August, 99% of Sell volume was SO-Flagged.
2.1 Daily volume of SO-Flagged/non-Flagged actions
77% of Sell balancing action volume taken in August had an SO-Flag, compared with 79% the previous month. 49% of SO-Flagged Sell actions came from Balancing Service Adjustment Actions (BSAAs), 40% came from CCGT BMUs and 9% from Wind BMUs. The average initial price (i.e. before any re-pricing) of a SO-Flagged Sell action was -£20.62/MWh.
32% of Buy balancing action volume taken in August had an SO-Flag, compared to 40% in July. 51% of SO-Flagged Buy actions came from CCGT BMUs and 43% from BSAAs. The average initial price of a SO-Flagged Buy action was £54.88/MWh.
Any actions with a total duration of less than the CADL are flagged. The CADL is currently set at 10 minutes.
0.6% of Buy actions and 0.4% of Sell actions were CADL Flagged in August. The majority of CADL Flagged Buy actions (94%), and CADL Flagged Sell actions (81%) came from Pumped Storage BMUs, with CCGT BMUs accounting for a further 13% 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 August, an average of 50% of balancing actions received a First-Stage Flag with an average of 62% of this volume going on to receive a Second-Stage Flag. On the 30 August, 76% of balancing volume was flagged; with 60% of this volume 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, 80% of Sell volume in August was Flagged. Of this Flagged Sell volume, 2% 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 August, 101 (7%) Settlement Periods had a Replacement Price based on the RPAR and 61 (4%) Settlement Periods had a Replacement Price based on the MIP. However, the majority of Settlement Periods (89%) 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. Table 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|
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 £6.07/MWh and the average Replacement Price for Sell actions (when the System was long) was £17.31/MWh.
33% of Buy volume were Flagged; of this Flagged Buy volume, 2% 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 £43.47/MWh, and the average Replacement Price was £37.58/MWh.
If there are no Unflagged actions remaining in the NIV, the Replacement Price will default to the MIP. This occurred in 46 long and 15 short Settlement Periods in August, compared to 16 long and 36 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 August, 89% 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 (1,294MWh) was seen in Settlement Period 3 on 21 August, where the System Price was £52.50/MWh.
The minimum long system NIV of the month was -961MWh, in Settlement Period 46 on 23 August, where the System Price was £3.00/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 589 long Settlement Periods in August, 42 of which occurred on 24 August. The average NIV on this day was -208MWh, with the lowest NIV (-685MWh) occurring in Settlement Period 2.
2.7 Net Imbalance Volume and System Price
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.
PAR Tagging is active in almost all Settlement Periods. The only periods not affected by the parameter have a NIV of less than 1MWh.
During August, there were seven Settlement Periods where PAR Tagging was inactive. The average NIV in these Settlement Periods was -0.13MWh. Settlement Period 17 on 31 August had the lowest absolute NIV (0.10MWh), 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) or Buy actions which are either the same price or lower than the price of Sell actions (Arbitrage Tagging). The DMAT is currently set at 0.1MWh.
Graph 2.8 shows the volumes of actions removed due to DMAT Tagging. 0.0015% of total Buy and Sell volume was removed by DMAT Tagging in August, compared to 0.0010% the previous month. 56% of the DMAT Tagged volume came from CCGT BMUs, 17% from Gas BMUs and 16% from BMUs with no registered fuel type.
2.8 Daily percentage of DMAT Tagged volume
Graph 2.9 shows the volumes of actions that were removed due to Arbitrage Tagging. 0.4% of total Buy and Sell volume was removed by Arbitrage Tagging in August. 42% of the Arbitrage Tagged came from BSAAs, 37% from CCGT BMUs and 9% from Gas BMUs.
2.9 Daily percentage of Arbitrage Tagged volume
In August, the average initial price of an Arbitrage Tagged Buy action was £39.21/MWh, and for a Sell action was £36.74/MWh. The maximum initial price of an Arbitrage Tagged Sell action was £268.52/MWh, and the lowest priced Arbitrage Tagged Buy action was -£30.00/MWh.
On 7 August, 1,637MWh of actions were Arbitrage Tagged, representing 2% of the daily volume of balancing actions. The average price of an Arbitrage Tagged Buy action was £34.08/MWh, and for a Sell action was £27.97/MWh on this day. 49% of the Abitrage Tagged Volume came from BSAAs, 47% from CCGT 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 from Short Term Operating Reserve (STOR) providers 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.
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).
During August 2020 no STOR providers were called upon to activate STOR during STOR Availability Windows. This is the first month with no STOR volume since BSC Modifaction P305 was introduced in November 2015. Graph 3.1 shows the decline in STOR volume in Settlement with a significant decline seen in 2020. From January to August, there has been 73% less STOR volume activated in 2020 compared to 2019.
Graph 3.1 Monthly STOR vs Non-BM STOR Volume since November 2015
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 3.2 shows the daily minimum and average Gate Closure DRMs for August 2020.
3.2 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 August was 1.467GW on 26 August in Settlement Period 43, (compared to 5.561GW in July). This DRM corresponded to a LoLP of 0.0236 and RSVP of £141.63/MWh (see Table 3.3).
The RSVP re-prices STOR actions in the Imbalance Price calculation if it is higher than the original Utilisation Price. As no STOR was activated in STOR Availability Windows, no actions were repriced with the RSVP in August 2020.
3.3 Top 5 LoLPs and RSVPs
|Settlement Date||Settlement Period||DRM (MW)||LoLP||RSVP (£/MWh)||RSVP Used||System Price (£/MWh)||System Length|
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