Dual Pricing Risk increasing in the Dutch Balancing Market

Based on a customer question earlier this week, I was wondering if dual balancing prices were happening more frequently in recent times than in previous years. As we have seen significant behavioral changes in bidding for aFRR activation prices, I had the feeling that the impact of dual pricing periods was getting bigger. It turns out I was both right and wrong.

As we can see from the above chart, 2015 was the year with the most dual pricing periods in recent history. After the changes to the determinations of 'regulation state 2' in 2007, we had seen a steady decline in periods with dual pricing.

Between 2015 and 2020, there was little change in the average imbalance price spread or the price spread during dual pricing. When the energy crisis started, this changed. With more and more renewables in the mix and periods of scarcity in spinning reserve and a change in Full Activation Time to 5 minutes, it appears more scarcity was created, or some parties decided it was too risky to continue participating in passive balancing. For example the greenhouse sector, we hardly see them active in passive balancing, must have moved to mFRRda pools.

As a result, when the balance is tight, and speed is needed, we see the TSO activating the whole balancing stack at once. As this stack reacts quickly, the balance is quickly restored. With some parties still participating in passive balancing, sometimes we see an overshoot, creating an imbalance in the opposite direction as a result. This then requires the TSO to activate reserves in the opposite direction, which can then trigger regulation state 2.

I have heard people say this is a brilliant business case for a TSO as market parties are faced with either a short price that is unattractive or a long price that is unattractive and the delta goes to the TSO. I'm quite sure this is not the intention of the TSO, but just an artefact of the system, which I dare say works very well most of the time.

We do see more extreme spreads between long and short prices, but this is due to bidding behaviour of market parties. The TSO activates the whole stack of bids regardless if the maximum price is € 200 or € 2500. It is interested in the volume component, as a wise man once said: "The Network Always gets Paid".

So, we can't influence bidding behaviour, the grid operator has to balance. The next best thing is trying to understand when the risk of dual pricing is biggest. And behold, it is the first quarter of the new hour! We have discussed this many times before and my customers will be sick of it by now, but... the first quarter hour of every hour is tricky. Mainly this is due to changes in interconnector flows, which are driven by hourly day-ahead prices, let's not go into too much details, but accept that this is the case for now.

Also striking, is that apart from the usual suspects, the morning ramp, the evening peak and in recent years, the solar peak, we also see the hours between 22:00 and 04:00 popping up. These are the periods which traditionally see more spinning reserve and therefore are more likely to see passive balancing.

In below charts I've split the spreads that occured into blocks of 4 hours and added a line to show the total occurences in the period 2015-2023 per quarter hour. The orange dots relate to recent years, the blue dots to older data.

The most surprising thing about this analysis is that first quarters are not just more extreme in general, they are also more risky for passive balancing.

Over 40% of all dual pricing happens in the first quarter of the hour historically,

All in all, it was a good exercise to do, looking through the data and finding what the trends are. If you'd like to know more about the analysis or our platform, please contact me, or drop by our stand at E-World!