Elexon Insights: What is Driving Increases in Electricity Imbalance Volumes?

Daily average Energy Imbalance volumes have doubled between 2014 and 2019. In this ELEXON Insight, one of our Business Intelligence Analysts, Emma Tribe, investigates the drivers behind the increase in Energy Imbalance Volumes. This analysis also demonstrates that increases in Imbalance Volumes have not affected the volume of energy used by National Grid to balance the system.

(Published: July 2019)

Imbalance Volumes have increased dramatically since 2014

BSC Trading Parties accrue an Imbalance Volume in a Settlement Period when there is a difference in the volume of energy that they used, generated and traded during the Settlement Period.

We describe a Party as ‘long’ when the difference is positive and the Imbalance represents a surplus of energy. A Party is ‘short’ when the difference is negative and represents a deficit of energy.

We have looked at Imbalance volumes between January 2014 and May 2019 and we have found that the daily average absolute Imbalance Volume has risen by 111% from 35,725MWh in 2014 to 75,542MWh in 2019.

Short Imbalance Volumes have had the greatest increase, with daily average short Imbalance Volumes increasing by 129% and daily average long Imbalance Volumes increasing by 98%.

The graph below sets out the increase in more detail. Please note that the 2019 daily average is not calculated from a full year of data.

Drivers behind increases in Imbalance Volumes

The average daily absolute imbalance volumes have been split by BSC Party role in the graph below.

Interconnector Users and Non-Physical Traders show the highest increase in daily average absolute Imbalance volumes. The volumes for this group of Parties have increased by 25,888MWh since 2014.

The increase in Interconnector Users and Non-Physical Traders Imbalance Volumes is 65% of the total market increase in daily average Imbalance Volume.

The average number of Interconnector Users and Non-Physical Traders with Imbalance Volumes has increased from 21 per Settlement Period in 2014 to 30 per Settlement Period in 2018. The increase in Imbalance Volumes is not proportional to the increase in the number of Interconnector Users and Non-Physical Traders, this shows that these parties are choosing to have higher Imbalance Volumes.

The daily average Imbalance Volumes of Suppliers increased by 7,824MWh over the five years, which accounts for 20% of the total market increase. Over the same period, the average number of Suppliers with an Imbalance Volume increased from 22 per Settlement Period to 65 per Settlement Period. While the overall Imbalance Volume from Suppliers has increased, the Imbalance Volume per Supplier has decreased by 35%. This is due to smaller entrants with fewer customers entering the market.

The 5,198MWh increase in Imbalance Volumes from BSC Parties with multiple registered roles accounts for 13% of the increase.

Generators had the smallest increase in daily average Imbalance Volumes (908MWh) and are responsible for 2% of the total market increase in Imbalance Volumes.

Effects of Net Imbalance Volume Chasing

We have observed a trading strategy in analysing the settlements data which we call ‘Net Imbalance Volume (NIV) chasing’. This is where a BSC Party will deliberately incur an Energy Imbalance Volume in order to receive, or pay the Imbalance Price rather than the market price for that energy. This trading practice is allowed in the BSC rules.

For example, if the system is long and overall there is an excess of energy, the Imbalance Price is likely to be lower than the wholesale electricity market price. This means that a Party with a short Imbalance (deficit of energy) will be charged less for that volume of energy than they would have had to pay at the market price.

If the Party is a Generator, they can incur a deliberate imbalance volume by over generating or under generating in relation to the volume of energy they sold before the Settlement Period.

Non-Physical Traders, cannot be the lead Party on any registered generation or demand Balancing Mechanism Units (BMUs). Hence, they can incur an Imbalance Volume by buying energy from another trading party and not selling all of that energy on, or by selling energy to another a trading party and not buying enough energy to cover what they sold.

The graph above compares the daily average volume of Imbalance Energy in the same direction as the Net Imbalance Volume (blue bars) with the volume in the opposite direction to the Net Imbalance Volume (yellow bars).

The volume of energy in the same direction as the Net Imbalance Volume should always be greater than the volume in the opposite direction as the markets overall imbalance will lead to the net imbalance of the system.

The volume of daily imbalance against the NIV direction has increased by 174% (20,244MWh) between 2014 and 2019. Over the same time period the volume of imbalance in the direction of the Net Imbalance Volume has increased by 81% (19,554MWh).

The red line shows how the percentage of Imbalance in opposite direction to Net Imbalance Volume has increased from 32.5% to 42.2%.

The registered roles and system length filters in the bottom right allow you to see the graph using only imbalance volumes from a group of trading parties rather than the imbalance volumes from the entire market. The graph can also be filtered by system length.

Interconnector Users and Non-Physical Traders have the highest percentage of Energy Imbalance Volume against the direction of the NIV in 2018 and 2019. This could be due to more of these BSC Parties choosing to NIV chase as a trading strategy.

However, it is difficult to say with certainty that the increase in Imbalance Volumes for Interconnector Users and Non-Physical Traders are due to increases in NIV chasing.

In 2014 Interconnector Users and Non-Physical Traders were responsible for 21% of Imbalance Volume, that doubled to 43% in 2018 and grew to 44% of Imbalance Volume in 2019. This means that the Imbalance volumes of these Parties and the way they trade has become more important in determining what the net direction of the system will be in a Settlement Period.

What does the increase mean for balancing the system?

National Grid ESO maintains the balance of the GB Electricity Network by ensuring there is always enough generation to meet electricity demand. They do this by buying and selling energy balancing volume.

We analysed the volumes of balancing energy procured in each year, and found that the increases in BSC Parties Imbalance Volumes do not appear to have affected the volume of energy National Grid needs to balance the system.

The graph below shows the daily average energy balancing volumes traded by National Grid have increased by 23% between 2014 and 2016. However, comparing the first graph and the graph below is not a direct relationship between daily average Energy Imbalance Volumes and daily average energy balancing volumes.

We also looked if there was any impact on maximum and minimum Net Imbalance Volumes. National Grid ESO procure energy balancing volumes to offset the net market imbalance.

The minimum and maximum Net Imbalance Volumes in each year are shown as dotted and dashed lines in the graph above. The Net Imbalance Volume per Settlement Periods has remained between -2,314MWh and 2,473MWh between January 2014 and May 2019.

Despite increases BSC Parties Imbalance Volumes, short and long Imbalances have netted each other off. This has meant that the volumes of balancing energy traded has not increased at that same rate.

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